UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ýANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE |
For the fiscal year ended December 31, 20032004
COMMISSION FILE NO. 333-75804
SOUTH DAKOTA SOYBEAN PROCESSORS, LLC
(Exact Name of Registrant as Specified in its Charter)
South Dakota | 46-0462968 | |
(State of Other Jurisdiction of |
| (I.R.S. Employer |
100 Caspian Avenue, Post Office Box 500, Volga, South Dakota 57071
(Address of Principal Executive Offices)
(605) 627-9240
(Registrant’s Telephone Number)
SECURITIES REGISTERED PURSUANT TO SECTION 12 (b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12 (g) OF THE ACT: NONE
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§(§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ýo
Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes o No ý
State the aggregate market value of the voting and non-voting common equity held by non affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter: The aggregate market value of the common equity of the registrant and its predecessor held by non-affiliates as of June 30, 20032004 was approximately $43,400,000 based on the average sales price of its predecessor’s equity shares on June 18, 2002, which was the latest date of trading prior to June 30, 2003.2004.
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date: As of the date of this filing, there were 28,258,50028,334,750 Class A capital units of the registrant outstanding.
Part I
This information in this annual report on Form 10-K for the year ended December 31, 2003,2004, contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 with respect to the business and operations of South Dakota Soybean Processors and our affiliates. In addition, we and our representatives and agents may from time to time make other written or oral forward-looking statements, including statements contained in our filings with the Securities and Exchange Commission and our reports to members and security holders. Words and phrases such as “believe,” “expect,” “anticipate,” “intend,” “plan,” “estimate,” “predict,” “hope,” “will,” “should,” “could,” “may,” “future,” “potential,” or the negatives of these words, and all similar expressions identify forward-looking statements. We wish to caution readers not to place undue reliance on any forward-looking statements, which speak only as of the date made.
Our forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those discussed in the forward-looking statements. These risks and uncertainties include, but are not limited to, risks related to the level of commodity prices, loss of member business, competition, changes in the taxation of limited liability companies, compliance with laws and regulations, perceptions of food quality and safety, business interruptions and casualty losses, access to equity capital, consolidation of producers and customers, and alternative energy sources, and the performance of our Soybean Processing, Refining, Polyurethane and Other business segments.sources. Other risks or uncertainties may be described from time to time in our future filings with the Securities and Exchange Commission.
We undertake no obligation to revise any forward-looking statements to reflect future events or circumstances.
Item 1. Business
Overview
South Dakota Soybean Processors, LLC (SDSP) owns and operates a soybean processing plant, a SoyOylSoyolÒTM production facility and a soybean oil refinery in Volga, South Dakota. We began producing crude soybean oil, soybean meal and soybean hulls in late 1996, and since then we have expanded our business to include the development of new, vertically integrated product lines and management services. In 2000, we began providing management services to Minnesota Soybean Processors (MnSP) and will obtainobtained a minority interest in MnSP in 2004. In 2002, we began refining crude soybean oil into a product known as refined and bleached oil, and in early 2003, we became the majority owner and assumed management control of Urethane Soy Systems Company (USSC), which produces SoyOylÒ,Soyol, a bio-based polyurethane product made from soybean oil.
Our maincore business consists of processing locally grown soybeans into soybean meal and soybean oil. Soybean meal is primarily sold to resellers, feed mills, and to livestock producers as livestock feed. Since the completion of our refining facility in 2002, we have processed most of our crude soybean oil into refined and bleached oil. We sell our refined and bleached oil to a manufacturer of various retail and bulk food products where it is further processed for human consumption. We are exploring the feasibility of installing facilities that would enable us to further process the refined and bleached oil we produce into biodiesel, consistent with our strategy to increase our vertical integration by adding value to our core products.
We plan to maintain a competitive position in the marketplace by producing high quality products, operating a highly efficient operation at the lowest possible cost, and adding value to our products.core products to capture larger margins. We plan to increase our cost efficiency by increasing daily production
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capacity and to add value to our products by investing in further processing of our products and developing and reviewing new applications for our products in the plastics and energy fields.
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Our primary business objective is to maximize cash distributions to our members from the profits generated through our operations and investments. At the same time, our management recognizes the need to maintain our financial strength, and to consider and implement growth strategies that will allow us to continue meeting these objectives over time.
SDSP was originally organized as a South Dakota cooperative in 1993 and reorganized as a South Dakota limited liability company in July 2002. Our members are primarily farmers in South Dakota and neighboring states. Our offices are located at 100 Caspian Avenue, Post Office Box 500, Volga, South Dakota 57071, and our telephone number is (605) 627-9240.
Industry Information
The soybean processing industry converts soybeans into soybean meal, soybean hulls and soybean oil. Food ingredients are the primary end use for the oil, while the meal and hulls are mostly consumed by animals. Crude soybean oil is refined by our customers for use as salad and cooking oil, baking and frying fat, and to a more limited extent, for industrial uses. According to Oil World 2020, projects thata compilation report published in 1999, the U.S. soybean processing industry willis projected to grow at an annual rate of approximately 1 to 1½%.
Soybean production is concentrated in the central U.S., Brazil, China and Argentina. In the 2003/2004 harvest season, the U.S. produced approximately 2.4 billion bushels of soybeans or approximately 53% of estimated world production. The industry’s trade associations and the USDA estimate that approximately 63% of U.S. produced soybeans are processed domestically, 32% are exported as whole soybeans, and 5% are retained for seed and residual use. Historically, there has been adequate soybean production in the upper Midwest to supply the local soybean processing industry.
Soybean processing facilities are generally located close to adequate sources of soybeans and a strong demand for meal to decrease transportation costs. Poultry and swine dominate soybean meal consumption in the United States.U.S. On average, exports of soybean meal account for 15 to 20% of total production. A bushel of soybeans typically yields approximately 48 pounds of meal and 11 pounds of crude oil when processed.
Soybean oil refineries are generally located close to processing plants. Oil is shipped throughout the U.S. and for export. Approximately 97% of domestic oil production is used in food applications and 3% in industrial applications.
The U.S. soybean processing industry is comprised primarily of 15 different companies operating 65 plants in 22 states. It is a mature, consolidated and vertically-integrated industry with four companies controlling nearly 85% of the processing. Those four companies are Archer Daniels Midland (ADM), Bunge, Cargill and Ag Processing, Inc. (AGP). The U.S. vegetable oil (including soybean oil) refining industry is divided between oilseed processors and independent vegetable oil refiners. The oilseed processors operate approximately 80% of the vegetable oil refining capacity in the U.S., and ADM, Bunge, Cargill and AGP operate approximately 65% of the oil refining capacity. The three largest independent vegetable oil refiners are ACH Foods, Smuckers (P&G), and ConAgra (Hunt-Wesson).
Soybean crushing and refining margins are cyclical, characteristic of a mature, competitive industry. In addition, while the price of soybeans may fluctuate substantially from year to year, the prices of meal and oil generally track with the soybeans, although not necessarily on a one for oneone-for-one basis, and therefore, margins can be variable.
The soybean industry has worked diligently to introduce soy products as bio-based substitutes for various petroleum-based products. Such products include biodiesel, soy ink, lubricants, candles and plastics. Demand for biodiesel, in particular, is expected to expand, in part due to recently introduced federal incentives. Biodiesel is a substitute for standard, petroleum-based diesel fuel that is made from
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approximately 90% vegetable oil (such as soybean oil) or animal fat and 10% alcohol (methanol). The chemical reaction resulting from the combination of these components produces biodiesel and glycerin. Although the long-term average price differential of biodiesel is currently about $1 per gallon higher than standard diesel fuel, the 2004 Jobs Creation Act establishes a blender’s tax credit that will equate to about $1 per gallon of biodiesel. This new tax credit, along with some earlier, less significant production incentives, have essentially closed the price gap between standard diesel fuel and biodiesel, considerably increasing the feasibility of large-scale biodiesel production.
Reorganization
South Dakota Soybean Processors was originally organized on December 6, 1993, as a South
3
Dakota cooperative, which iswas entitled to single-level, pass-through tax treatment on income generated through the members’ patronage. This allowed us to pass our income on to our members in the form of distributions without first paying taxes at the company level, similar to a partnership. However, as we grew, the continuing availability of this advantageous tax treatment was becoming less and less secure. Accordingly, in 2001 the cooperative’s Board of Directors approved a plan to reorganize into a South Dakota limited liability company (LLC), which may elect to be taxed as either a partnership or a corporation. As an LLC, we plan to retain our historic single-level income tax treatment by electing to be taxed as a partnership.
The plan of reorganization was duly approved by our members at a meeting held on June 20, 2002, and the reorganization became effective July 1, 2002. The transaction was an exchange of interests whereby the assets and liabilities of the cooperative were transferred for capital units of the newly formed limited liability company, Soybean Processors, LLC. The capital units were distributed to our members upon dissolution of the cooperative at a rate of one capital unit of the LLC for each share of equity stock owned in the cooperative. The distribution of capital units to our members was registered under the Securities Act of 1933.1933, as amended. For financial statement purposes, no gain or loss was recorded as a result of the exchange transaction. Upon completion of the reorganization, the name of the limited liability company was changed to South Dakota Soybean Processors, LLC.
Products & Services
Currently, we divide our operations, products and services, and the related revenues and net income into four segments; Soybean Processing Refining, Polyurethane and Other. The Soybean Processing segment processes whole soybeans into soybean meal and crude soybean oil. The Refining segment processes crude oil from the Soybean Processing segment to refine and bleach the oil for sale into the food grade market. The Polyurethane segment modifies crude soybean oil to produce SoyOylÒ, which is sold exclusively by USSC, and the Other segment contains business operations, such as management services, that do not fit under one of the first three segments.
Soybean Processing Segment
In this segment, weWe crush and process soybeans to extract the soybean oil from the protein and fiber portions of the soybean. Our Soybean Processing products include soybean meal and crude soybean oil, accounting for approximately 85% and 15%, respectively, of revenues in this segment for 2003.
Soybean Meal and Hulls. Approximately 80% of the weight of the soybeans that we process annually is sold as soybean meal or hulls. The meal and hulls are shipped out by truck and rail car. Primary markets include the local truck market, the Pacific Northwest, and exports to Canada. Currently our significant meal customers include Land O’ Lakes and Commodity Specialists.
Soybean Oil.We currently extract crude soybean oil at a level equal to approximately 20% of the weight of the soybeans that we process annually. CrudeWe process most of the crude soybean oil produced by this segment is transferred to the Refiningwe produce into refined and Polyurethane Segments.bleached oil or Soyol. Depending upon market conditions, excess crude soybean oil is sold to other soybean oil refiners, stored for future use, or delivered against Chicago Board of Trade (CBOT) futures contracts since our Volga plant site is a registered delivery point for the CBOT soybean oil futures contract. We receive a storage payment through the CBOT for all oil that is delivered into this program.
Refining Segment
The Refining segmentWe began refining operations in August 2002 with the start-up of our on-site refining facility adjacent to our crushing plant in Volga, South Dakota. The Refining segment processesconsists of processing the crude soybean oil produced by the Soybean Processing segmentwe produce through a series of processes and filters to create a product known in the industry as refined and bleached oil. This segmentWe refined approximately 80%92% of the crude soybean oil we produced by the Soybean Processing segment in 2003.2004.
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We have an exclusive supply agreement with ACH Foods to provide its facilities with a consistent supply of refined and bleached oil on a general requirements basis. We have aPricing is fixed pricing established for the first
4
five years (until January 15, 2007), with the option to renegotiate the price thereafter. The oil is transported by rail from our plant to one of ACH Foods’ facilities, where it is further processed for the edible oil market.
Polyurethane Segment
In the Polyurethane segment, weWe also process crude soybean oil to produce SoyOyl®,Soyol, a bio-based polyurethane product made from specially processed crude soybean oil that has been developed for use as a replacement for certain petrochemical products. SoyOylSoyol is relatively new in the market and has been undergoing research and development in recent years. SDSP does the initial crude oil processing at the Volga, South Dakota facility and ships it directly to USSC’s customer.
USSC developed SoyOylSoyol and is now responsible for its marketing. SoyOylSoyol is a kind of polyol, which is a key chemical in foam formulation. It reacts with other ingredients to form different types of polyurethane foam, which can be used in a variety of products such as insulation, packaging, furniture padding, carpet backing and footwear.
USSC holds the patents for SoyOylSoyol and a number of related production processes and industrial uses. We have the exclusive rights to supply soybean oil for USSC’s sales of SoyOyl untilSoyoluntil 2014 and have agreed not to sell soybean oil to any other company in the plastics industry. We have also been assigned the rights to a patent and have developed a second patent relating to the modification of crude soybean oil for use in industrial applications such as manufacturing SoyOylSoyol that provides cost advantages over other process techniques.
USSC’s sales personnel are located throughout the upper Midwest, and USSC is completing new research and development laboratories at our Volga site. Dow Chemical is a primary customer of USSC utilizing SoyOylSoyol in its BiobalanceÒ product, a polyurethane carpet backing. John Deere also uses SoyOylSoyol in its Harvest FormÒ product, a rigid polyurethane combine shield.
We originally purchased a 4% ownership in USSC in May 2000 for $1 million. Effective January 2003, we agreed to invest an additional $8.55 million to acquire a 58% majority ownership interest in USSC by purchasing shares from existing shareholders and newly issued shares from USSC. We also agreed to take over the management of USSC. We currently hold six of the nine seats on USSC’s board of directors, and our CEO is also the president of USSC. In OctoberWe purchased the newly issued shares of USSC for $4.50 million which was paid during 2003 we paid $1,377,000and 2004. We purchased the shares from the existing shareholders of the purchase price to the USSC shareholders. The remainder of the purchase price to the shareholders becomes due in threefor $4.05 million on an installment basis and have two remaining equal annual installments of $891,000 payable in October of each year.2005 and 2006.
Other Segment
The Other segment includes all items not related to one of theWe also generate income from various other three reportable segments. In 2003, revenues in this segment were generated primarily fromprojects, including construction management fees for overseeing the general construction of a 100,000 bushel per day soybean processing facility built by Minnesota Soybean Processors (MnSP) in Brewster, Minnesota. In addition, at times we earn miscellaneous income for consulting fees or the completion of feasibility studies or other projects. The revenue from such activities also falls into this segment.
In August 2000, we entered into an agreement with MnSP to provide construction management for its new soybean processing plant. Under the contract, we were paid 10% of the total equity raised, and we agreed to reinvest 80% of the construction management fees in equity of MnSP. MnSP completed its equity fundraising in April 2002, raising a total of approximately $29 million. Construction began approximately six months later and was completed in November 2003.
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We plan to makemade our required reinvestment in MnSP in the secondthird quarter of 2004 by transferring a 63 million-pound oil storage tank and loading facilities that we constructed on land adjacent to the MnSP site. In exchange for such transfer, we will receivereceived 1,400,400 (post split) shares of Class A Stock of MnSP, representing approximately 7% of MnSP’s outstanding shares. In the third quarter of 2004, we
In addition, we5
subscribed for 287,500 shares of Class B Stock in MnSP. The shares are 8%, Non-Cumulative Convertible Class B Preferred Stock sold at $2.00 per share. We made our deposit of $287,500 and will pay the remaining commitment of $287,500 if MnSP completes the offering. We also made approximately $500,000 in interest-free loans backed by retained local earningsmembers’ equity to our members to invest in MnSP. These loans will be repaid through member distributions.
As MnSP begins production, weWe are providing management and marketing services to MnSP, including the day-to-day management control of MnSP’s plant under a Services and Management Agreement with MnSP pursuant to which we are paid primarily on a cost-sharing basis. Costs for various employees, such as commercial, accounting, and engineering employees, and other administrative expenses will be allocated between SDSP and MnSP based on the volume of soybeans processed at each plant. Rodney Christianson, our Chief Executive Officer has general management and oversight responsibilities of MnSP under this Agreement.
MnSP plans to start construction in 2004 on a 30 million gallon biodiesel refinery adjacent to its soybean processing facility.
Raw Materials and Suppliers
We procure soybeans from local soybean producers and country elevators. In 20032004 soybean production in South Dakota was approximately 140 million bushels up significantly from 2003’s crop of 113 million bushels, down from 2002’s crop of 127 million bushels,which was low primarily due to dry weather conditions. We control the flow of soybeans into the plant with a combination of pricing and contracting options. Threats to the soybean supply include weather, changes in government programs, and competition from other processors and export markets. Our refining plant and Polyurethane segmentpolyurethane production procure their entire supply of crude soybean oil from our crushing plant.
We use natural gas and electricity to operate the crushing and refining plants. Natural gas is used in the boilers for process heat and for drying soybeans. NorthWestern Energy provides natural gas service to the plant on an interruptible basis. We are at risk to adverse price fluctuations in the natural gas market, but we have the capability to use fuel oil as a back up for natural gas if delivery is interrupted or market conditions dictate. We employ forward contracting to offset some of this risk. Our electricity is supplied by the City of Volga. A long term contract on electricity offsets some of our price exposure on electrical rates.
Employees
We currently employ approximately 95109 individuals. All but 1823 of our employees are full-time. We have no unions or other collective bargaining agreements.
Sales, Marketing and Customers
Our primary meal markets are the local truck market (typically within 200 miles of our Volga plant), the Western U.S. (Washington, Oregon and California), and exports (to Canada). Our primary soybean oil market is Illinois and is served by rail. Our rail service is provided by the Dakota, Minnesota and Eastern (DM&E) rail line, with connections to the Burlington-Northern Santa Fe (BNSF) and the Union Pacific (UP). The table presented below lists the percentage of sales by quantity of product sold within various markets for 2003.2004.
|
| Soybean Meal |
| Crude Soybean Oil |
| Refined Oil |
|
|
|
|
|
|
|
|
|
Local |
| 38 | % | 6 | % | — |
|
Other U.S. States |
| 53 | % | 67 | % | 100 | % |
Export (including Canada) |
| 9 | % | 27 | % | — |
|
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|
| Soybean Meal |
| Crude Soybean Oil |
| Refined Oil |
|
|
|
|
|
|
|
|
|
Local |
| 34 | % | 45 | % | — |
|
Other U.S. States |
| 52 | % | 52 | % | 100 | % |
Export (including Canada) |
| 14 | % | 3 | % |
|
|
Competition
We are the only significant hexane extraction plant in South Dakota and we believe that we have approximately 9%7% of the soybean processing capacity in the Upper Midwest and about 1% in the United States. We plan to maintain our competitive position in the market by producing high quality product and operating a highly efficient operation at the lowest possible cost, and adding value to our products. We plan to increase our cost efficiency by increasing daily production capacity, adding value to our products by investing in further processing of our products and developing and reviewing new applications for our products in the plastics and energy fields.
Government Regulation and Environmental Matters
Hexane recovery is closely monitored by the Environmental Protection Agency. New regulations effective in April 2004 require that the amount of hexane lost in the extraction process not exceed 0.2 gallons per ton of soybean oil produced on a rolling 12-month average. Our production process currently meets this requirement.
As part of a Compliance Plan with the South Dakota and Federal Departments of Environment and Natural Resources, we installed a new zero process discharge system to replace our conventional wastewater system and are currently in compliance with our surface water discharge permits. We are obligated to provide ongoing compliance reports to the Department of Environment and Natural Resources.
We maintain a spill prevention plan that contains the necessary procedures to minimize spill events and provide emergency notification, if necessary. It also contains the required information pertaining to spill containment procedures in the event a spill does occur, and the proper spill clean-up procedures. The plan places us in compliance with the provision of 40 CFR, Part 112, of the Federal Regulations on oil pollution prevention, and the provisions of SARA, Superfund Amendments and Reauthorization Act, 1986. It also addresses all known potentially polluting materials at our plant. At this time, we do not generate any known hazardous wastes at our plant.
We also maintain an EPA Facility Response Plan. This plan is also prepared according to the guidelines of 40 CFR, Part 112, and pursuant to the Oil Pollution Act of 1990. This plan is designed to emphasize oil spill prevention and oil spill response preparedness.
Item 2. Properties
We conduct our operations in all of our segments principally from our facilities in Volga, South Dakota. We own our facilities at Volga, and they serve as collateral for our credit facilities. We also store crude soybean oil from our Soybean Processing segment at our facility in Brewster, Minnesota. In addition, USSC leases office space for a portion of it sales staff in Princeton, Illinois.
Item 3. Legal Proceedings
From time to time in the ordinary course of our business, we may be named as a defendant in legal proceedings related to various issues, including without limitation, workers’ compensation claims, tort claims, or contractual disputes. We carry insurance that provides protection against general commercial liability claims, claims against our directors, officers and employees, business interruption,
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automobile liability, and workers’ compensation claims. Except as described below, we are not currently involved in any material legal proceedings and are not aware of any potential claims.
On January 28, 2003, we were served with notice that we had been named as a defendant in a breach of contract suit in the circuit court of Cook County, Illinois, along with a number of other individual defendants, including our Chief Executive Officer, Rodney Christianson. The plaintiff, James Jackson, was an employee of USSC whose services were terminated shortly after we became the majority owner in early January 2003. Mr. Jackson claims that he was wrongfully terminated and that the defendants unjustly interfered with his employment contract and committed fraud in connection with our
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acquisition of a controlling interest in USSC. He is claiming nearly $1 million in compensatory damages and $5 million in punitive damages. Based upon our investigation of the facts surrounding the case, we believe that Mr. Jackson’s employment contract was not properly authorized and that his claims are substantially without merit. We are vigorously defending the action; however, we cannot provide any assurance that we will be successful in disposing of the case or that any costs of settlement or damages would not be material if we are unable to get the case dismissed. We anticipate enteringhave entered into mediation negotiations with Mr. Jackson, in the second quarter of 2004.but have not yet reached a settlement agreement. Under the terms of our stock purchase agreement with USSC, we believe that we would be entitled to indemnification from USSC for our costs to settle or defend the suit, although since we now own 58% of USSC we will not receive dollar-for-dollar indemnification from USSC.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of security holders in the quarter ending December 31, 2003.2004.
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Part II
Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters
Neither SDSP, nor our predecessor cooperative, sold any equity securities during the past three years ended December 31, 2004; however, we implemented a two-for-one capital unit split effective June 17, 2003. Subsequent to December 31, 2004, we commenced an offering of capital units further described below under the section, “Capital Raising”.
Trading Activity
As of March 30, 2004,15, 2005, we had 28,258,50028,334,750 Class A capital units outstanding, held by 2,0982,114 members. There is currently no active trading market for our capital units.
The following table is theunits, and there has not been any trading history ofactivity in our capital units and equity shares of our predecessor cooperative (prior to the capital unit split) by quarter for the past two years.
Quarter |
| Low Bid |
| High Bid |
| Average Bid |
| # of Units Traded |
|
|
|
|
|
|
|
|
|
Jan – Mar 2002 |
| 2.84 |
| 3.05 |
| 2.95 |
| 62,500 |
Apr – Jun 2002 |
| 3.01 |
| 3.24 |
| 3.07 |
| 47,500 |
Jul – Sep 2002 |
|
|
|
|
| No Trading Activity |
|
|
Oct – Dec 2002 |
|
|
|
|
| No Trading Activity |
|
|
Jan – Mar 2003 |
|
|
|
|
| No Trading Activity |
|
|
Apr – Jun 2003 |
|
|
|
|
| No Trading Activity |
|
|
Jul – Sep 2003 |
|
|
|
|
| No Trading Activity |
|
|
Oct – Dec 2003 |
|
|
|
|
| No Trading Activity |
|
|
Although we are not currently permitting trading in our capital units, other than for the limited permitted private transfers discussed above that are subject to the approval of our Board of Managers, we are in the process of establishing a limited alternative trading service for our capital units, which we expect to begin operating in the third quarter of 2005. The trading service is expected to be operated by Variable Investment Advisors, Inc., a registered broker/dealer that will also be registered with the Securities and Exchange Commission as an alternative trading system. Under our trading service, our Board of Managers will not permit the number of capital units traded through the service each year to exceed 2% of our total issued and outstanding capital units. This is necessary in order to ensure that the trading service falls within certain “safe harbors” contained in the publicly traded partnership rules under the federal tax code. We have obtained a private letter ruling from the IRS regarding the contemplated structure of our capital units trading service confirming that such structure will comply with the IRS’s safe-harbor provisions for the publicly-traded partnership rules. As part of implementing the trading service, our Board has approved some clarifying changes to the Operating Agreement to reflect the treatment of our member’s capital accounts and the allocations to the capital accounts. These changes to the Operating Agreement will be presented to the members for approval at our annual meeting in June 2005.
Distributions
In 2002, we paid total cash distributions to our members in the amount of $5.5 million (19.53¢ per capital unit on a post-adjusted capital unit splitpost-split adjusted basis). In 2003, we paid total cash distributions to our members in the amount of $2.5 million (9.0¢ per capital unit). In March 2004, we made a cash distribution to our
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members in the amount of approximately $3.3 million (11.64¢ per capital unit). This was the only distribution in 2004.
Under our Operating Agreement, the Board is required to distribute 30% of available net income (i.e. gross cash proceeds from operations after deducting amounts used to pay expenses or establish reserves at the Board’s discretion) to members each year, unless available net income does not exceed $500,000 or such a distribution would violate or cause a default under the terms of our debt financing or other credit facilities or is otherwise prohibited by law. Any other distributions are entirely at the discretion of the Board of Managers and there is no guarantee as to when or if the Company will make distributions in any particular amount or at all and actual distributions will depend upon profitability, expenses and other factors. Earnings, losses and cash distributions are allocated to members based on their percentage of capital unit ownership.
Trading Restrictions
As an LLC,a limited liability company, we must strictly restrict transfers of our capital units in order to preserve our preferential single-level tax status. Our capital units may not be traded on any national securities exchange or in any over-the-counter market. All transfers must be in accordance with our Capital Unit Transfer System, as it may bemaybe amended by the Board of Managers from time to time. Our Capital Unit Transfer System prohibits any transfer that would result in the loss of our partnership tax status.
Pursuant to our Operating Agreement, a minimum of 2,500 capital units is required for membership.membership, and no member may own more than 1.5% of the total outstanding capital units. In addition to the transfer restrictions described above, under certain limited circumstances the Board also retains the right to redeem the capital units at the greater of $.20 per capital unit or the original purchase price paid upon issuance of such capital units less cumulative distributions paid with respect to such capital units. The Board’s right to redeem is available in the event a member attempts to dispose of the units in a manner not in conformity withbreaches the Operating Agreement or other contract with SDSP or upon a failure to fulfill the membership requirements, including the foregoing minimum and maximum ownership requirements, but only if athe member becomes a holder of less than 2,500 units, becomes an owner (directly or indirectly) of more than 1.5% offails to cure the issued and outstanding capital units or becomes bankrupt. Earnings, losses and cash distributions are allocated to members based on their percentage of capital unit ownership. Our Operating Agreement also provides that cash equal to at least 30% of net income will be distributed annually to members subject to certain limitations, including minimum net income of $500,000, restrictions imposed by debt and credit instruments, or as restricted by law indefault within the event of insolvency.twenty-four months after we send written notice.
Our Operating Agreement prohibits transfers other than through the procedures specified in our Capital Units Transfer System. Under this system, all transactions must be approved by the Board. The Board will generally approve transfers that fall within “safe harbors” contained in the publicly traded partnership rules under the federal tax code. Permitted transfers include transfers by gift or sale to qualified family members and transfers upon death.
Although we are not currently permitting trading in our capital units, other than for the limited permitted private transfers discussed above that are subject to the approval of our Board of Managers, we
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are in the process of establishing a limited capital units transfer service. The capital units transfer service is expected to be operated by Variable Investment Advisors, Inc., a registered broker/dealer, and will also be registered with the Securities and Exchange Commission as an alternative trading system. As currently proposed, our Board of Managers will not permit the number of capital units traded through the service each year to exceed two percent of our total issued and outstanding capital units in order for the capital units transfer service to fall within “safe harbors” contained in the publicly traded partnership rules under the federal tax code. We have requested a private letter ruling from the IRS, regarding the contemplated structure of our capital units transfer service in order to confirm that it will comply with the IRS’s safe-harbor provisions for the publicly-traded partnership rules. We do not expect to receive a response from the IRS to our private letter ruling until at least the second quarter of 2004, and we cannot assure that we will receive a favorable ruling. If we do not receive a favorable ruling, we will be required to restructure our proposed capital units transfer service and may not be able to provide it at all.
10
Item 6. Selected Financial Data
The following table sets forth selected financial data of South Dakota Soybean Processors, LLC and our predecessor cooperative for the periods indicated. The historical financial information in the table below includes audited financial data of our predecessor cooperative prior to the effectiveness of the reorganization on July 1, 2002. The audited financial statements for the year ended December 31, 2004 included in Item 8 of this report have beenwere audited by our independent auditors,Gordon, Hughes & Banks, LLP. The financial statements for the years ended December 31, 2003 and 2002 included in Item 8 of this report were audited by Eide Bailly LLP.
|
| Years Ended December 31, |
|
| Years Ended December 31, |
| ||||||||||||||||||||||||||
|
| 2003 |
| 2002 |
| 2001 |
| 2000 |
| 1999 |
|
| 2004 |
| 2003 |
| 2002 |
| 2001 |
| 2000 |
| ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Bushels Processed |
| 28,384,272 |
| 27,963,507 |
| 26,924,542 |
| 26,832,064 |
| 24,553,153 |
|
| 26,823,093 |
| 28,384,272 |
| 27,963,507 |
| 26,924,542 |
| 26,832,064 |
| ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Statement of Operations Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Net Sales |
| $ | 207,256,575 |
| $ | 159,488,645 |
| $ | 148,258,146 |
| $ | 145,273,300 |
| $ | 128,146,355 |
|
| $ | 238,211,056 |
| $ | 207,256,575 |
| $ | 159,488,645 |
| $ | 148,258,146 |
| $ | 145,273,300 |
|
Patronage Income |
| 97,975 |
| 36,801 |
| 1,460,386 |
| 1,779,755 |
| 660,623 |
|
| 153,961 |
| 97,975 |
| 36,801 |
| 1,460,386 |
| 1,779,755 |
| ||||||||||
CBOT Storage Income |
| 1,416,333 |
| 1,867,769 |
| 1,629,420 |
| 1,436,184 |
| 1,432,260 |
|
| 58,769 |
| 1,416,333 |
| 1,867,769 |
| 1,629,420 |
| 1,436,184 |
| ||||||||||
Agent Fee Income |
| — |
| 258,988 |
| 463,896 |
| 450,674 |
| 417,049 |
|
| — |
| — |
| 258,988 |
| 463,896 |
| 450,674 |
| ||||||||||
Grant Income |
| 33,022 |
| — |
| — |
| — |
| — |
| |||||||||||||||||||||
Management Fees & Misc. |
| 1,243,205 |
| 1,286,340 |
|
|
|
|
|
|
|
| 162,270 |
| 1,245,205 |
| 1,286,340 |
| — |
| — |
| ||||||||||
Grant Income |
| 253,622 |
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
|
| 210,269,710 |
| 162,938,543 |
| 151,811,848 |
| 148,939,913 |
| 130,656,287 |
|
| 238,619,078 |
| 210,269,710 |
| 162,938,543 |
| 151,811,848 |
| 148,939,913 |
| ||||||||||
Costs & Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Cost of goods sold |
| 203,022,360 |
| 152,583,964 |
| 141,359,124 |
| 140,293,625 |
| 125,954,573 |
|
| 232,703,866 |
| 203,022,360 |
| 152,583,964 |
| 141,359,124 |
| 140,293,625 |
| ||||||||||
Marketing & Administrative Expense |
| 3,639,442 |
| 2,679,633 |
| 2,234,248 |
| 1,768,207 |
| 1,783,460 |
| |||||||||||||||||||||
Marketing & Admin Expense |
| 4,476,511 |
| 3,639,442 |
| 2,679,633 |
| 2,234,248 |
| 1,768,207 |
| |||||||||||||||||||||
Interest Expense |
| 802,178 |
| 542,220 |
| 483,223 |
| 1,050,880 |
| 723,031 |
|
| 1,425,849 |
| 802,178 |
| 542,220 |
| 483,223 |
| 1,050,880 |
| ||||||||||
Income Tax Expense (Benefit) |
| (131,474 | ) | 520,000 |
|
|
|
|
|
|
|
| 1,032 |
| (131,474 | ) | 520,000 |
| — |
| — |
| ||||||||||
Minority Interest in Loss of Subsidiary |
| (457,620 | ) |
|
|
|
|
|
|
|
|
| (676,792 | ) | (457,620 | ) | — |
| — |
| — |
| ||||||||||
Net Income |
| 3,394,824 |
| 6,612,726 |
| 7,735,253 |
| 5,827,201 |
| 2,195,223 |
|
| $ | 688,612 |
| $ | 3,394,824 |
| $ | 6,612,726 |
| $ | 7,735,253 |
| $ | 5,827,201 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Capital Units Outstanding(1) |
| 28,258,500 |
| 28,258,500 |
| 28,258,500 |
| 28,258,500 |
| 28,258,500 |
| |||||||||||||||||||||
Weighted Average Capital Units Outstanding(1) |
| 28,250,139 |
| 28,258,500 |
| 28,258,500 |
| 28,258,500 |
| 28,258,500 |
| |||||||||||||||||||||
Net Income per Capital Unit |
| $ | 0.120 |
| $ | 0.235 |
| $ | 0.275 |
| $ | 0.205 |
| $ | 0.078 |
|
| $ | 0.02 |
| $ | 0.120 |
| $ | 0.235 |
| $ | 0.275 |
| $ | 0.205 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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| ||||||||||
Balance Sheet Data: |
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|
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|
|
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|
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| ||||||||||
Working Capital |
| $ | 9,499,231 |
| $ | 5,363,332 |
| $ | 4,212,055 |
| $ | 3,173,651 |
| $ | 2,380,942 |
|
| $ | (2,865,135 | ) | $ | 9,499,231 |
| $ | 5,363,332 |
| $ | 4,212,055 |
| $ | 3,173,651 |
|
Net Property, Plant & Equipment |
| 31,825,619 |
| 33,761,185 |
| 31,892,837 |
| 31,872,946 |
| 33,963,308 |
|
| 30,130,219 |
| 31,825,619 |
| 33,761,185 |
| 31,892,837 |
| 31,872,946 |
| ||||||||||
Total Assets |
| 81,617,064 |
| 70,284,896 |
| 58,680,968 |
| 55,030,320 |
| 50,955,893 |
|
| 72,499,888 |
| 81,617,064 |
| 70,284,896 |
| 58,680,968 |
| 55,030,320 |
| ||||||||||
Long-Term Obligations |
| 17,664,442 |
| 10,234,523 |
| 8,346,078 |
| 8,649,420 |
| 12,819,873 |
|
| 9,115,496 |
| 17,664,442 |
| 10,234,523 |
| 8,346,078 |
| 8,649,420 |
| ||||||||||
Members Equity |
| 34,730,590 |
| 33,875,593 |
| 32,779,725 |
| 30,771,474 |
| 25,518,926 |
| |||||||||||||||||||||
Members’ Equity |
| 32,122,573 |
| 34,730,590 |
| 33,875,593 |
| 32,779,725 |
| 30,771,474 |
| |||||||||||||||||||||
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|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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| ||||||||||
Other Data |
| 2,80,342 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Capital Expenditures |
| $ | 1,016,849 |
| $ | 4,645,020 |
| $ | 2,718,740 |
| $ | 720,956 |
| $ | 2,658,400 |
|
| $ | 1,209,602 |
| $ | 1,016,849 |
| $ | 4,645,020 |
| $ | 2,718,740 |
| $ | 720,956 |
|
(1) Adjusted for two-for-one capital unit split effective June 17, 2003.
1110
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion along with our financial statements and the notes to our financial statements included elsewhere in this report. The following discussion contains forward-looking statements that are subject to risks, uncertainties and assumptions. Our actual results, performance and achievements may differ materially from those expressed in, or implied by, such forward-looking statements. See “Cautionary Statement Regarding Forward-Looking Information” at the beginning of this report.
Executive Overview
Although ourWe generated gross profit of $5.5 million in 2004, an increase of 30% versus 2003. Margins in the soybean complex improved in the second and third quarters of 2004 due to the oilseed complex rationing of the short U.S. soybean crop reducing the supply, and increasing the price, of soybean meal and soybean oil. Margins in the fourth quarter weakened due to general reluctance by farmers to sell soybeans following a sharp drop in soybean prices. Net income generated for 2004 was $689,000. Net income decreased 80% for 2004 versus 2003. The decrease in net income was primarily due to non-operating income, consisting of construction management and soybean oil storage, decreasing by an aggregate of $2.6 million in 2004 versus 2003, a $0.6 million increase in interest expense due to higher commodity prices and a $0.8 million increase in administrative expenses resulting from additional expenses incurred in connection with the management and operation of ussc. Despite a record 2004 crop harvested and good demand for 2003 was lower than 2002soy products, management expects margins in the near term to be under pressure as farmers adjust to soybean prices dropping from over $9 per bushel to the low $5 range.
Since our construction management services for Minnesota Soybean Processors (MnSP) have been completed, we are now performing management and 2001,marketing services for MnSP on a cost-sharing basis. This cost-sharing arrangement has helped to offset the increased expenses that we performed wellhave incurred in our efforts to improve soybean processingoil margins and refining segments and made majorexpand soybean oil markets to the polyurethane industry.
We expect to continue to make progress towards our long-term objectives of delivering high quality products and services at the lowest possible costs and adding value to our products by investing in further processing of our products and developing and reviewing new applications for our products in the plastics and energy fields. In late 2003, construction on MnSP’s soybean processing facility, whichDuring 2004, we were overseeing, was completed, which will provide us with future cost-sharing savings. In January 2003, we assumed management control of USSC and began providing some much needed workingcontinued to expend capital to fund the company throughoperations of Urethane Soy Systems Company, Inc. (“USSC”), our share acquisition. Under our management in 2003,majority-owned subsidiary which produces SoyolÒ, a bio-based polyurethane product made from soybean oil. USSC focused on raisinghas used these funds to raise the level of industry experience of its staff, targetingtarget its marketing and sales, increasingincrease its product lines, improvingimprove quality control and relocatingrelocate its research facilities to our Volga, South Dakota plant site. As of June 2004, USSC had a fully operating and staffed chemical and applications lab. In addition, during the third and fourth quarter of 2004, USSC’s marketing efforts were highlighted by the following achievements:
•In 2004, we anticipate that managementthe carpet industry, the largest supplier of carpet backing polyurethane systems agreed to market USSC’s products;
• In the soyautomotive industry, USSC successfully produced seat cushions for Ford Motor and Volvo, successfully completed a headrest trial at Lear, and received indications of interest from Toyota, GM, and Intier;
• In the polyurethane bed-liner market, USSC completed product testing and began marketing of its Bio TuffTM bed-liner system, a USSC trademark; and
• In the pulltrussion industry, USSC conducted successful production tests in a customer’s plant. We expect the customer will be onemake products with USSC’s system commercially available by mid 2005.
11
In addition, USSC has developed three new product uses for Soyol and major progress has been made to reduce the odor of our most difficult challenges. The soy market is currently benefiting from growing demand with improving world economies. Yet, margin structure will be pressured by the shortfallSoyol in the 2003 soybean crop in the U.S. and the shrinking South American crop.polyurethane products. We also believe that incidents of “mad cow disease and “bird influenza” in the U.S. could have a negative impact on the demand for soybean meal. On the other hand, we anticipate that our general and administrative expenses will be reduced significantly in 2004 as a result of our cost-sharing arrangement with MnSP. We also believe thatduring 2005 we will see growth in demand for SoyOyl®Soyol as customers in the carpet, rigid foam, flex foam, pulltrusion and automotive industryindustries complete their testing of SoyOyl.Soyol. We, however, do not anticipate that USSC will generate net income until at least 2006.
Since beginning operations in 1996, we have returned in excessAs a result of 125% of members’ original investment, increased our production capacity by 60%, invested to further process and add value to 30% of our revenue stream, and invested in a new and promising market to use soybean oil, SoyOylÒ, to replace petroleum-based polyoladverse changes in the manufacturing of polyurethane products.
Our strategy will remain the same assoybean market and our continued capital investment in USSC, we look forward. We will seek to continue delivering high quality products and services to our customers at the lowest possible cost. We will also continue our efforts to add value to the products we produce with the goal of having 60% of the revenues we generate from value-added products, rather than basic soybean meal and crude soybean oil.encountered some cash flow constraints in 2004. In order to continueprovide additional working capital and finance our capital investment in USSC, our Board authorized a maximum value added paymentcapital units offering to our members we will lookraise up to develop strategic business relations with others to achieve our goals as we have$11.25 million, which was launched in the past.February 2005.
Company Profile
We own and operate a soybean processing plant, a SoyOylSoyolÒ production facility and a soybean oil refinery in Volga, South Dakota. We were originally organized as a South Dakota cooperative, and reorganized into a South Dakota limited liability company effective July 1, 2002. We began producing crude soybean oil and soybean meal in late 1996, and since then we have also expanded our business to include the development of new product lines and management services. In 2000, we began providing management services to Minnesota Soybean
12
Processors (MnSP) and will obtainobtained a minority interest in MnSP in 2004. In 2002, we began refining crude soybean oil into a product known as refined and bleached oil, and in early 2003, we became the majority owner and assumed management control of the company Urethane Soy Systems Company (USSC), which produces SoyOylÒ, a bio-based polyurethane product made from soybean oil.
SDSP was originally organized as a South Dakota cooperative, and reorganized into a South Dakota limited liability company effective July 1, 2002. The following discussion relates to financial data of South Dakota Soybean Processors, LLC and the predecessor cooperative for the periods indicated. The historical financial information discussed below includes audited financial data of our predecessor cooperative prior to the effectiveness of the reorganization on July 1, 2002.USSC.
When we began refining operations in 2002, we started reporting our results by operational segments because we anticipated that those components of our business would be managed and evaluated independently; however, since then we have been processing most of the crude oil we produce into refined and bleached oil or SoyOylSoyol® instead of selling it, and the production, sales and marketing of our products have been substantially integrated. Accordingly, in late 2003, we began the process of reevaluating whether segment reporting is necessary. Unless or until wenecessary and along with our auditors have since concluded that segment reporting is not necessary under the applicable accounting rules, we will continue to provide disclosure for operating segments. The discussion below covers four segments: Soy Processing, Refining, Polyurethane and Other, which containsrules. We therefore discontinued segment reporting of our business operations that do not fit under one of the first three segments. Our segments can be generally described as follows:in 2004.
• The Soybean Processing segment consists of our original soybean processing operations in which whole soybeans are crushed and processed into soybean meal and crude soybean oil. The meal is sold primarily to local customers for animal feed and to customers in the northwestern United States and western Canada. The crude soybean oil is primarily transferred to our Refining segment for further processing into refined and bleached oil or sold to other soybean oil refiners.
• The Refining segment processes crude soybean oil from our crushing plant to a quality standard referred to as refined and bleached oil. The Refining segment began operations in August 2002. The refined and bleached oil is then sold in accordance with a long-term supply agreement and delivered to one of our customer’s facilities, where it is then further processed for human consumption.
• The Polyurethane segment currently consists of sales of SoyOyl®, a bio-based polyol made from specially processed crude soybean oil. SDSP processes crude oilat the Volga, South Dakota facility and ships it directly to USSC’s customer. Included in this segment are the consolidated financial statements of USSC and the financial information related to the special processing of crude oil at SDSP. We implemented this segment beginning in January 2003 after we purchased an additional interest in USSC raising our ownership percentage in the company from 4% to 58%. With that purchase, we assumed management control of USSC.
• The Other segment includes all items not related to one of the other three reportable segments. It consists primarily of construction management fees for overseeing the general construction of the Minnesota Soybean Processors (MnSP) facility. In addition, at times we earn miscellaneous income for the completion of feasibility studies or other projects or consulting fees, and the revenue from such projects also falls into this segment.
13
Results of Operations
Comparison of Years Ended December 31, 2004 and 2003
Revenue – Revenue increased from $207.3 million for the year ended December 31, 2003 to $238.2 million for the year ended December 31, 2004, an increase of approximately $30.9 million, or 14.9%. The improvement was a result of several factors. Principally, the increase in revenues is a result of higher soybean meal and soybean oil prices along with higher sales volume of refined and bleached oil. The average sales prices for soybean meal, crude soybean oil, and refined and bleached soybean oil increased by 23.9%, 12.0%, and 30.4%, respectively. In addition, sales volume of refined and bleached soybean oil increased by 7.3% in 2004 versus 2003. The increases attributable to these factors were offset by a decrease of 85.1% in sales volume of crude soybean oil during 2004, which resulted from the fact that we sold crude soybean oil we held in storage during 2003.
Gross Profit/Loss – During the year ended December 31, 2004, the Company generated a gross profit of $5.5 million, compared to a gross profit of $4.2 million for the year ended December 31, 2003. While revenues increased by $30.9 million, cost of revenues increased only $29.7 million over 2003. Revenues increased due to higher soybean meal and soybean oil prices offset by a decrease in crude soybean oil volume. The increased cost of revenue was caused by a $26.1 million (15.0%) increase in cost of product sold and a $3.1 million (21.4%) increase in freight expense for the year ended December 31, 2004 compared to 2003. The increased cost of product sold was due to higher soybean prices, which
12
increased approximately 25.0% from the year ended December 31, 2003. The increased freight cost resulted from higher product volumes delivered to customers and higher freight rates.
Administrative Expense – Administrative expense, including all selling, general and administrative expenses, increased by $837,000, or 23%, for the year ended December 31, 2004 compared to the same period in 2003. This increase resulted from additional expenses incurred in connection with the management and operation of USSC. USSC remains in the developmental stage, and we continue to incur marketing and research and development expenses to develop a market for Soyol®. Administrative expenses for 2004 also include amortization of certain patents previously classified as goodwill. Some of the increase in administrative expenses associated with USSC has been offset by lower general and administrative expenses that we are incurring on our crushing and refining operations as a result of our cost-sharing arrangement with MnSP.
Interest Expense – During 2004, interest expense increased by $620,000, or 77.7%, compared to 2003. The increase was due to higher debt levels resulting from the increase in soybean prices and higher interest rates. On December 31, 2004, we had outstanding debt of $10.2 million, most of which consists of the Company’s senior debt which bore interest at an annual rate of 4.85% interest as of December 31, 2004. At December 31, 2003, we had outstanding debt of $18.5 million, the majority of which bore interest at an annual rate of 3.47%. The average debt level throughout 2004 was approximately $23.6 million compared to an average debt level during 2003 of approximately $21.8 million.
Net Income/Loss – We recorded net income of $689,000 for the year ended December 31, 2004, compared to net income of $3.4 million in 2003. The decrease of $2.7 million in net income is primarily attributable to a decrease in other non-operating income and an increase in administrative expenses incurred in connection with the management and operation of USSC, offset by an increase in revenue as a result of higher soybean meal and soybean oil prices. Other non-operating income decreased by $2.7 million (91.3%) for the year ending December 31, 2004, compared to the same period in 2003. This decrease was primarily due to a decrease of $1.1 million in construction management income and a decrease of $1.5 million in soybean oil storage income.
Comparison of Years Ended December 31, 2003 and 2002
Readers are directed to Note 17 – Segment Reporting of our audited consolidated financial statements for data on the audited financial results of our four business segments for the years ended December 31, 2003 and 2002.
Revenue – Revenue increased from $159.5 million for 2002 to $207 million for 2003, an increase of 30%. The improvement was a result of several factors. Principally, commodity prices increased for all of our commodities, and sales of our refined and bleached oil were up 363% for the year as a result of a full year of operations of our refinery versus 4four months of operations in 2002. Total soybean oil sales were up 38% due to sales in 2003 of soybean oil held in storage from 2002, a higher soybean oil yield per bushel, and an increase in production in our Soybean Processing segment.the volume of soybeans processed. We placed significant quantities of oil in storage in 2002 because prices were relatively low and we hoped to realize greater basis improvement in later sales. Basis objectives were achieved in 2003 and most of the stored oil was sold and shipped during 2003. As a result, we sold 95 million more pounds of crude and refined and bleached oil during 2003 than in 2002. We do not expect these higher sales levels of crude and refined and bleached oil to be sustained in the short-run due to the exhaustion of our stored oil inventory. Additional information regarding the factors affecting our Soybean Processing and Refining revenue is included in the discussion of those segments below.
Gross Profit – During 2003, the Company achieved a gross profit of $4.2 million compared to a gross profit of $6.9 million in 2002, a 39% decrease. Total cost of revenue increased by $50.4 million, a 33% increase in 2003 versus 2002. The increased cost of revenue was caused by increased cost of product sold, production and freight costs of $45.7 million (36%), $2.3 million (20%), and $2.4 million (20%), respectively. Factors impacting the increased cost of product sold in 2003 includeincluded a 1.5% increase in the volume of soybeans processed, 95 million pounds of additional soybean oil sales, and increasinghigher commodity prices of soybeans for the Soybean Processing segment..soybeans. The increased freight cost resulted from higher product volumes delivered to customers and higher freight rates. The increased production expense was attributable to higher natural gas prices, increased depreciation expense for the refinery assets, and increased labor and personnel expenses for the refinery operations.
13
Administrative Expense – Administrative expense, including selling, general and administrative expenses, increased $960,000, or 36%, for 2003 compared to 2002. Much of this increase represents the consolidation of USSC in SDSP’s financial statements for 2003, and corresponding expenses of $896,000 related to additional employees, marketing and professional fees. The remaining increase was due largely to travel expenses related to the USSC acquisition, and travel and relocation expense and search fees for procuring new personnel for our refinery and construction management projects.
Interest Expense – Interest expense increased $260,000, or 48%, for the year ended December 31, 2003 compared to 2002. The increase was due to higher debt levels caused by carrying larger values in accounts receivable and inventory, less operating income and capital investments, including our investment in USSC, partially offset by lower interest rates. Refined and bleached oil was in production for all of 2003 versus only the last four months of 2002. Financing longer payment terms for refined and bleached oil receivables accounted for a portion of the additional interest cost. As of December 31, 2003, we had outstanding debt of $17.5 million, most of which consisted of our senior debt and bore interest at an annual rate of 3.47% as of December 31, 2003. At December 31, 2002, we had outstanding debt of $10.1 million, the majority of which bore interest at an annual rate of 3.57%.
Net Income – Net income for the year ended December 31, 2003 was $3.4 million compared to $6.6 million for the same period in 2002, a decrease of $3.2 million, or 48%. The decrease in net income was primarily a result of the 33% increase in total cost of revenues while revenues increased only 30%,
14
the consolidation of USSC’s operations, and the additional interest expense resulting from higher debt balances.
LIQUIDITY AND CAPITAL RESOURCES
Comparison of the years ended December 31, 2004 and 2003
Soybean Processing – Cash Flows from Operating ActivitiesSoybean Processing is our largest segment and therefore, the discussions in the preceding sections are generally tied to the variances between the revenue and operating income in the Soybean Processing segment. Revenue in this segment for sales to external customers was $144 million for year ended December 31, 2003 and $142
Operating activities generated $12 million for the year ended December 31, 2002. Sales volume2004, compared to $2.0 million for the year ended December 31, 2003. The funds generated in the year ended December 31, 2004 consisted primarily of meal was relatively unchanged$689,000 of cash from net income plus depreciation and amortization of $3.7 million, a $8.3 million change in current assets and liabilities, less $677,000 of minority interest in the net loss of USSC and non-cash patronage dividends of $108,000. The primary changes from 2003 included a $12.4 million decrease in working capital needs, offset by $2.1 million less net income in 2004, a $219,000 reduction in minority interest in net loss of subsidiary, and a $98,000 reduction in depreciation expense.
Cash Flows from Investing Activity
Investing activities used $1.9 million during the year ending December 31, 2004 compared to 2002.$5.5 million for the year ended December 31, 2003. The purchase of shares in MnSP accounted for $601,000 of such expenditures in 2004. In 2003, we purchased shares in USSC amounting to $4.1 million. In addition, we purchased $1.2 million of property and equipment during the year ending December 31, 2004 compared to $1.0 million purchased in the period ending December 31, 2003. The $1.2 million spent on property and equipment during the year ended December 31, 2004 consisted of equipment to increase the energy efficiency of the boiler, improvements in our crushing operations, and increased storage for Soyol. During 2003, the $1.0 million spent on property and equipment consisted of consolidation software to upgrade our technological capabilities and several other projects to improve our soybean processing and refining operations.
14
Cash Flows from Financing Activity
Net cash used by financing activities for the years ending December 31, 2004 was $10.6 million, compared to a generation of $4.1 million of cash flows in 2003. During the year ended December 31, 2004, we made payments of $8.3 million on long-term debt commitments by carrying smaller values in accounts receivable and distributed $3.3 million to our members, offset by a $1.0 million increase in outstanding checks in excess of bank balances. During the year ended December 31, 2003, sales volume of crude soybean oil, decreased 52%, as compared to the sales volume during the same period in 2002. We sold significantly lower volumes of crude soybean oil in 2003, because we ceased selling most ofincreased our crude soybean oil once we began refining operations in late August 2002. However, we had placed significant quantities of crude soybean oil in storage in 2002 because prices were relatively low and we hoped to realize greater basis improvement in later sales. Those basis objectives were achieved in 2003 and most of the stored oil was sold and shipped during 2003. Lower volumes in the Soybean Processing segment were offsetborrowings by higher average sales prices for soybean meal (14%), and crude soybean oil (34%) during 2003. The Soybean Processing segment reported net income for the year ended December 31, 2003 of $3.6$9.5 million, as compared to $6.2 million for the year ended December 31, 2002.
Refining – Revenue in the Refining segment for the year ended December 31, 2003 was $62.5 million. Revenue for 2002 for this segment was only $17.4 million, but included less than four months of refining operations, which began in late August 2002. The $45.1 million increase in sales volume of refined and bleached soybean in 2003 versus 2002 is attributable primarily to the fact that we operated the refinery for less than the full year in 2002 and there were start-up inefficiencies with the refining process. A combination of the higher volume, higher refined and bleach oil sales price, improved refined and bleached oil yields, and implementation of strategies to maximize the value of refining co-products resulted in refining revenues increasing to $62.5 million for 2003. The Refining segment reported net income of $183,000 for 2003 as compared to a $382,000 net loss for 2002.
Polyurethane – Consolidated revenue for the Polyurethane segment for the years ended December 31, 2003 and 2002 was $319,000 and $163,000, respectively. We continue to work to secure new markets for SoyOyl® but it is not yet a significant part of our business. The Polyurethane segment reported a net loss for the years ended December 31, 2003 and 2002 of $1,089,000 and $236,000, respectively. The primary difference in consolidated revenue and net losses for 2003 versus 2002 resulted from the acquisition of majority ownership in USSC and the related consolidation of USSC on our financial statements.
Other – We recognize construction management income on the MnSP project as it is earned at SDSP based on the percentage of completion of the project. We recognized management income of $1.2 million in each of 2002 and 2003 based on the percentage of completion of the project. Allocated expenses against the management income were $500,000 and $200,000 for the years ended December 31, 2003 and 2002 respectively, consisting primarily of management and personnel time.
The MnSP construction project was completed in November 2003, and we do not expect to have significant income in this segment in the near future. We are currently providing management and marketing services to MnSP, which are paid for on a cost-reimbursement basis, allocated according to the number of bushels of soybeans processed by the MnSP and SDSP plants, respectively.
Year Ended December 31, 2002 Compared to the Year Ended December 31, 2001
Revenue – Revenue increased from $148.3 million for the year ended December 31, 2001 to $159.5 million for the year ended December 31, 2002, an increase of 7.4%. The improvement was a result of several factors: principally, increased sales volume of soybean meal, and also slightly increased soybean meal and crude soybean oil prices in our Soybean Processing segment during the later period and
15
the replacement of crude soybean oil sales with additional value-added refined oil sales in our Refining Segment. Additional information regarding the factors affecting our Soybean Processing and Refining revenue is included in the discussion of those segments below.
Gross Profit – Gross profit was relatively unchanged between the years ended December 31, 2002 and 2001. Total cost of revenue sold increased by $11.2 million, an 8% increase for the year ended December 31, 2002 versus 2001. The increased cost of revenue was caused by increased cost of product sold, freight and production cost of $7.5 million (6%), $2.7 million (29%), and $1 million (9%), respectively. Factors impacting the increased cost of product sold for the year ended December 31, 2002 included a 4% increase in the volume of soybeans processed and increasing prices for soybeans. The increased freight cost resulted from higher product volumes delivered to customers and higher freight rates. The increased production expense was attributable to increased depreciation expense for the refinery assets, and increased labor and personnel expenses for the refinery operations offset by lower utility costs and lower hexane chemical costs due to upgrades in our equipment.
Administrative Expense – Administrative expense, including selling, general and administrative expenses, increased $445,000, or 20%, for the year ended December 31, 2002 compared to the same period in 2001. The increase consisted of an increase by 35.8% in professional fees related to the conversion of the cooperative to a limited liability company, and additional wages and benefits.
Interest Expense – Interest expense increased $59,000, or 12.2%, for year ended December 31, 2002 compared to the same period in 2001. The increase was due to higher debt levels caused by carrying larger values in accounts receivable and inventory, less operating income and early payment of patronage due to the reorganization, partiallyexpenditures for capital investments, including our investment in USSC. These additional borrowings in 2003 were offset by lower interest rates. We began production of refined and bleached oil in August 2002. Financing longer payment terms for refined and bleached oil receivables accounted for a portion of the additional interest cost. As of December 31, 2002, we had outstanding debt of $10.2 million, most of which consisted of our senior debt and bore interest at an annual rate of 3.57% as of December 31, 2002. At December 31, 2001, we had outstanding debt of $10.7 million, the majority of which bore interest at an annual rate of 4.11% as of December 31, 2001.
Net Income – Net income for the year ended December 31, 2002 was $6.6 million compared to $7.7 million for the same period in 2001, a decrease of $1.1 million, or 14.5%. The decrease in net income was primarily a result of the increase in administration expense, a decrease in patronage dividend income from Cenex Harvest States as a result of our reduced sales of crude soybean oil to them, and income tax expense of $520,000 incurred as a result of the change in organizational structure to an LLC, offset by $1.2 million of income from construction management fees as discussed below.
Soybean Processing – Soybean Processing is our largest segment and until August 2002 was our only operating segment, other than a small other segment. Therefore, the discussions in the preceding sections are generally tied to the variances between the revenue and operating income in the Soybean Processing segment. Revenue in this segment for sales to external customers was $141.9 million for the year ended December 31, 2002 and $148.2 million for the year ended December 31, 2001. During the year ended December 31, 2002, sales volume of soybean meal increased 2%, while crude soybean oil decreased 28%, as compared to the sales volume during the same period in 2001. Higher sales volumes of soybean meal in the year ended December 31, 2002 resulted primarily from the lower moisture and soybean oil content of the 2001 crop, which generated more soybean meal on a per bushel basis. We sold lower volumes of crude soybean oil in the year ended December 31, 2002 because we began refining operations in late August 2002 and stored additional crude soybean oil in order to obtain basis objectives. We also experienced higher average sales prices for soybean meal (1%) and crude soybean oil (5%) during that period. The Soybean Processing segment reported net income for the year ended December 31, 2002 of $6.2 million as compared to $7.3 million for the year ended December 31, 2001.
16
Prior to the change in organization to a LLC, we received patronage income from all of the pounds of crude oil sold to Cenex Harvest States. The patronage income was based on net income in their refinery segment, and was allocated to us in January of each year. We accrued the patronage based on the quarterly filings with the Securities and Exchange Commission of Cenex Harvest States. For the years ending December 31, 2002, and 2001, that income was $37,000 and $1.5 million, respectively. Due to the change in our organizational structure, we are no longer eligible to receive patronage income on crude oil sold to Cenex Harvest States; however, with the installation of our on-site refining equipment, the amount of crude soybean oil we sell to Cenex Harvest States is no longer significant.
Refining – Revenue in the Refining segment for the year ended December 31, 2002 was $17.4 million, but included only a few months of refining operations, which began in late August 2002. Accordingly, there were no revenues in 2001 for this segment. The Refining segment reported a $382,000 net loss for the year ended December 31, 2002. This was due to high overhead caused by the start-up of the segment. Extra labor was used to get the equipment operational to meet the deadline imposed by the supply agreement, and extensive training of personnel was needed for the start-up activities. We received $112,000 in 2002 from the USDA based on a Value-Added Development Grant that offset some of the additional costs.
Polyurethane – Revenue for the Polyurethane segment for the years ended December 31, 2002 and 2001 was $39,670 and $12,666, respectively. SoyOylÒ remained in the development stage during these periods and revenues from its sales were not material, and no expenses were allocateddistribution to our SoyOyl operations for the years ended December 31, 2002members of $2.5 million and 2001.
Other – We recognize construction management income as it is earned at SDSP basedpayments of $1.6 million on the percentage of completion of the project. The MnSP project was divided into four stages, and a period was established for each stage. We adjust the period each month if a particular stage appears that it will take longer to complete than anticipated. For the year ended December 31, 2002, we recognized management income of $1.2 million compared to $302,000 for the same period in 2001 based on the percentage of completion of the project. Allocated expenses against the management income were $248,000 and $0 for the years ended December 31, 2002 and 2001 respectively, consisting primarily of management and personnel time.
LIQUIDITY AND CAPITAL RESOURCESlong-term debt commitments.
Comparison of the years ended December 31, 2003 and 2002
Cash Flows from Operating Activities
Operating activities generated $775,000 for the year ended December 31, 2003, compared to $10.9 million for the year ended December 31, 2002. The funds generated in the year ended December 31, 2003 consisted primarily of $3.4 million of cash from net income plus depreciation of $3.0 million, less a $5.1 million change in current net assets and liabilities, $457,000 of minority interest in the net loss of USSC and non-cash patronage dividends of $68,000. The primary changes from 2002 included $3.3 million less net income in 2003 and a $1.5 million increase in working capital needs, offset by $68,000 reduction in non-cash patronage allocations, and additional depreciation expense of $248,000.
Cash Flows from Investing Activity
Investing activities cost $5.5 million during the year ending December 31, 2003 compared to $6.9 million for the year ended December 31, 2002. The purchase of shares in USSC accounted for $4.1 million of such expenditures in 2003. We also advanced loans to our members of $480,000 on future distribution payouts towards the purchase of MnSP stock. In addition, we purchased $1.0 million
17
of property and equipment during the year ending December 31, 2003 compared to $4.6 million purchased in the period ending December 31, 2002. The primary variance in property and equipment is due to the construction of the oil refinery at our Volga SD location during 2002. The $1.0 million spent on property and equipment during the year ended December 31, 2003 consisted mostly of small items. The largest single investment during that period was consolidation software to upgrade our technological capabilities and several projects to improve our soybean processing and refining operations. In 2002, we also spent approximately $2.3 million for the construction of a new oil storage tank in Brewster, MN, which we heldtransferred to MnSP for sale to MnSP.approximately 7% of MnSP’s outstanding shares.
Cash Flows from Financing Activity
Net cash generated by financing activities for the years ending December 31, 2003 and 2002 was $5.4 million and $6.0 million, respectively. During the year ended December 31, 2003, we increased our borrowings by $9.5 million, as a result of carrying larger values in accounts receivable and inventory, less operating income and expenditures for capital investments, including our investment in USSC. These additional borrowings were offset by a distribution to our members of $2.5 million and payments of $1.6 million on long-term debt commitments. During the year ended December 31, 2002, we paid $5.5 million to our members in a cash distribution and principal payments of $455,000 on our long-term debt.
Year Ended December 31, 2002 Compared to the Year Ended December 31, 2001
Cash Flows from Operating Activities
Operating activities generated $10.9 million for the year ended December 31, 2002, compared to $9.5 million for the year ended December 31, 2001. The primary changes from 2001 included $1.1 million less net income in 2002, offset by a significant $1.5 million reduction in non-cash patronage allocations from Cenex Harvest States, a reduction in working capital needs of $603,000, and additional depreciation expense of $289,000.
Cash Flows from Investing Activity
Investing activities cost $7.0 million during the year ended December 31, 2002. This $7.0 million of expenditures consisted of $4.6 million for equipment purchases for the plant and $2.3 million towards the construction of an oil storage tank at Brewster, Minnesota. Included in the $4.6 million of plant equipment expenditures were $4.1 million in costs associated with the addition of the oil refinery in 2002. The other $500,000 was spent on miscellaneous projects to meet maintenance or environmental requirements or improve efficiencies within the plant.
Cash Flows from Financing Activity
Cash flows from financing activities cost $6.0 million during the year ended December 31, 2002 as compared to $5.7 million during the year ended December 31, 2001. The $6.0 million in expenditures during 2002 consisted of $5.5 million paid to our members in a cash distribution, and $455,000 in principal payments on long-term debt as compared to $5.7 distributed to our members and $992,000 in principal payments on long-term debt offset by proceeds of $1.1 million from other long-term debt in 2001.
Indebtedness
CoBank is our primary lender. Effective February 26, 2002,June 17, 2004, we establishedmodified the two lines of credit with CoBank to meet the needs of our borrowing needs.operations. The first is a revolving long-term loan agreement. Under the
15
terms of this loan, we began with a $16.0$18.4 million credit line, which was increased incrementally to $21.0 million on May 1, 2003, and then began decreasingline. It now reduces by $1.3 million approximately every nine months
18
thereafter.six months. The final payment will be equal to the remaining unpaid principal balance of the loan on March 20, 2011. The revolving loan is set up so that we may borrow funds as needed up to the credit line maximum, and then pay down the principal whenever excess cash is available. Repaid amounts may be reborrowed up to the available credit line. We pay a 0.375%0.50% annual commitment fee on any funds not borrowed.
The second credit line is a revolving working capital loan under anloan. In February 2005, CoBank unilaterally extended this agreement that expires onfrom March 31, 2005 unless extended by CoBank.to July 1, 2005. The primary purpose of this loan is to finance inventory and receivables. The maximum availability under this credit line ranges from $6.0 million to $10.0 million for particular commitment periods during the term of the loan to match our anticipated needs with respect to carrying inventory. For example, we have higher lines established during the months of October through May to cover the carrying costs of higher soybean inventories that are piled outside during the harvest season.is $16 million. Borrowing base reports and financial statements are required monthly to justify the balance borrowed on this line. We pay a 0.25% annual commitment fee on any funds not borrowed; however, we have the option to reduce these credit lines during any given commitment period listed in the agreement to avoid incurring the commitment fee on funds not borrowed.fee.
Both CoBank loans are set up with a variable rate option. The variable rate is set by CoBank and changes weekly on the first business day of each week. We also have a fixed rate option on both loans allowing us to fix rates for any period between one day and the entire commitment period. We can requestget a fixed rate quote from CoBank at any time and lock-in the interest rate on all or a part of our then outstanding borrowings .that are available for fixing. Both CoBank loans are secured by substantially all of our assets and are subject to compliance with standard financial covenants and the maintenance of certain financial ratios.
The balance borrowed on the revolving term loan was $15.3$7.9 million and $9.9$15.3 million as of December 31, 20032004 and 2002,2003, respectively. There were no advances outstanding on the working capital credit lineloan at December 31, 2003 or 2002.2004 and 2003. The annual interest rate on both the working capital and revolving term loans as of December 31, 2003 and 20022004 was 3.47% and 3.57%, respectively per year.
In August 2000, we entered into an agreement with MnSP for certain construction management services for its new soybean processing plant in Brewster, Minnesota. We4.85%. CoBank has agreed to reinvest a minimumdefer our next two scheduled principal payments of 80%an aggregate of the fees we earn under the agreement in MnSP equity securities. To date, we have earned approximately $2.9 million under the agreement, and expect to make our required investment of $2.3 million in MnSP in the second quarter of 2004 by transferring the 63 million pound oil storage tank and loading facilities we built next to the plant in Brewster, Minnesota, along with the land we acquired for the tank site.$2.6 million.
We also have other long-term contracts and notes totaling approximately $3.2$2.3 million, with a weighted average annual interest rate of 1.6%2.2% as of December 31, 2003.2004. These arrangements include a no interest $1.8 million long-term payable to the other USSC shareholders relating to SDSP’sour purchase of their tendered USSC shares with a current outstanding principal balance of $2.6 million.shares. The obligation is secured by the purchased shares, with final payment due on October 31, 2006. Our highest interest payable is onduring 2004 was a $250,000 loan held by USSC at 15% per annum which becomesbecame due February 13, 2005 and cannot be prepaid.has been paid in full. We made principal payments of $1,452,107$976,000 and $454,991$1,452,000 on these additional long-term obligations during the years ended December 31, 20032004 and 2002,2003, respectively.
In September 2003, our board of managers authorized the sale and issuance ofCapital Raising
We are currently conducting a registered offering to sell up to 4,500,0005,625,000 new SDSP capital units. If theThe offering is completed, we intendwas made available exclusively to use the proceeds primarily to finance our acquisition of USSC. We plan to offer the capital units first to currentexisting members of SDSP forat a price of $2.00 per capital unit until April 11, 2005, and then, if after 45 days we have not raised at least $8.5 million, the remaining capital units would be offeredis now available to the general public forat a price of $2.50 per capital unit. Anyone interest in learning more about such offering may request a copy of the prospectus that describes the offering terms from South Dakota Soybean Processors, LLC, 100 Caspian Avenue, P.O. Box 500, Volga, South Dakota 57071 or by contacting Lucas Uecker at (605) 627-6138. All investments must be made in accordance with the terms described in the prospectus. Nothing in this paragraph or report shall constitute an offer to sell capital units or other securities of SDSP. To conduct the offering, we must first file a registration statement on Form S-1 with the Securities and Exchange Commission and may only
19
proceed with the offer and sale of capital units after the registration statement is declared effective by the SEC.
We invested $5.5approximately $1.2 million in capital expenditures during the year ended December 31, 2004 compared to approximately $1.0 million in capital expenditures during the year ended December 31, 2003. WeDepending on the success of the current offering described above, we anticipate spending approximate $3between $1.0 and $2.0 million inon capital expenditures during the year ended December 31, 2004.2005. Our
16
principal source of funds, in addition to the potential offering describedescribed above, areis anticipated to be cash flows from operating activities and borrowings under our revolving and working capital loans with CoBank.
OFF BALANCE SHEET FINANCING ARRANGEMENTS
The Company doesWe do not utilize special purpose entities or off-balance sheet financial arrangements.
Lease Commitments
We have commitments under various operating leases for rail cars, various types of vehicles, and lab and office equipment. Our most significant lease commitments are the rail car leases we use to distribute our products. We have a number of long-term leases with GE Capital and Trinity Capital for hopper rail cars and oil tank cars. Total lease expense under these arrangements was approximately $1.9$2.1 million and $1.7$1.9 million for the years ending December 31, 20032004 and 2002,2003, respectively. The hopper rail cars earn mileage credit from the railroad through a sublease program which totaled $1.6$1.8 million and $1.4$1.6 million for the years ending December 31, 20032004 and 2002,2003, respectively.
In addition to rail car leases, we have several operating leases for various equipment and storage facilities. Total lease expense under these arrangements was $321,000$198,000 and $628,000$328,000 for the years ending December 31, 20032004 and 2002,2003, respectively. Some of these leases include purchase options; however, none are for a value less than fair market value at the end of the lease. The reason for the decrease in other lease expense for 2002 was substantially higher due to2004 is the crude soybeanexpiration of leases for off-site oil storage tanks leased due to market conditions.facilities during 2003.
The following table shows our contractual obligations for the periods presented.
CONTRACTUAL |
| Payment due by period |
| |||||||||||||
(Dollars in thousands) |
| Total |
| Less than |
| 1-3 years |
| 3-5 years |
| More than 5 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Long-Term Debt Obligations |
| $ | 18,519,258 |
| $ | 976,117 |
| $ | 4,530,089 |
| $ | 4,538,751 |
| $ | 8,474,301 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Capital Lease Obligations |
| — |
| — |
| — |
| — |
| — |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Operating Lease Obligations |
| 19,931,794 |
| 2,000,411 |
| 3,942,873 |
| 3,145,736 |
| 10,842,774 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Purchase Obligations |
| — |
| — |
| — |
| — |
| — |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Other Long-Term Liabilities |
| 121,301 |
| 11,000 |
| 22,000 |
| 22,000 |
| 66,301 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Total |
| $ | 38,572,353 |
| $ | 2,987,528 |
| $ | 8,494,962 |
| $ | 7,706,487 |
| $ | 19,383,376 |
|
20
|
| Payment due by period |
| |||||||||||||
CONTRACTUAL |
| Total |
| Less than |
| 1-3 years |
| 3-5 years |
| More than |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-Term Debt Obligations |
| $ | 10,202,589 |
| $ | 1,216,438 |
| $ | 1,039,011 |
| $ | 1,247,140 |
| $ | 6,700,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital Lease Obligations |
| — |
| — |
| — |
| — |
| — |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Operating Lease Obligations |
| 20,447,504 |
| 2,148,707 |
| 4,055,919 |
| 3,232,584 |
| 11,010,294 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Purchase Obligations |
| — |
| — |
| — |
| — |
| — |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Other Long-Term Liabilities |
| 129,345 |
| 11,000 |
| 22,000 |
| — |
| 96,345 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Total |
| $ | 30,779,438 |
| $ | 3,376,145 |
| $ | 5,116,930 |
| $ | 4,479,724 |
| $ | 17,806,639 |
|
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Preparation of our financial statements requirerequires estimates and judgments to be made that affect the amounts of assets, liabilities, revenues and expenses reported. Such decisions include the selection of the appropriate accounting principles to be applied and the assumptions on which to base accounting estimates. Management continually evaluates these estimates based on historical experience and other assumptions we believe to be reasonable under the circumstances.
The difficulty in applying these policies arises from the assumptions, estimates, and judgments that have to be made currently about matters that are inherently uncertain, such as future economic conditions, operating results and valuations as well as management intentions. As the difficulty increases, the level of precision decreases, meaning that actual results can and probably will be different from those currently estimated.
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Of the significant accounting policies described in the notes to the financial statements, we believe that the following may involve a higher degree of estimates, judgments, and complexity:
Commitments and Contingencies
Contingencies, by their nature relate to uncertainties that require management to exercise judgment both in assessing the likelihood that a liability has been incurred, as well as in estimating the amount of the potential expense. In conformity with accounting principles generally accepted in the United States, we accrue an expense when it is probable that a liability has been incurred and the amount can be reasonably estimated.
Inventory Valuation
We account for our inventories at estimated net realizable market value. These inventories are agricultural commodities that are freely traded, have quoted market prices, may be sold without significant further processing and have predictable and insignificant costs of disposal. We derive our estimates from local market prices determined by grain terminals in our area. Processed product price estimates are determined by the ending sales contract price as of the close of the final day of the period. This price is determined by the closing price on the Chicago Board of Trade, net of the local basis. Changes in the market values of these inventories are recognized as a component of cost of goods sold.
Long-Lived Assets
Depreciation and amortization of our property, plant and equipment is provided on the straight-lined method by charges to operations at rates based upon the expected useful lives of individual or groups of assets. Economic circumstances or other factors may cause management’s estimates of expected useful lives to differ from actual.
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Long-lived assets, including property, plant and equipment and investments are evaluated for impairment on the basis of undiscounted cash flows whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An impaired asset is written down to its estimated fair market value based on the best information available. Considerable management judgment is necessary to estimate discountedundiscounted future cash flows and may differ from actual.
Accounting for Derivative Instruments and Hedging Activities
We minimize the effects of changes in the price of agricultural commodities by using exchange-traded futures and options contracts to minimize our net positions in these inventories and contracts. We account for changes in market value on exchange-traded futures and option contracts at exchange prices and account for changes in value of forward purchase and sales contracts at local market prices determined by grain terminals in the area. Changes in the market value of all these contracts are recognized in earnings as a component of cost of goods sold.
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Item 7A. Quantitative and Qualitative Disclosure about Market Risk
Commodities Risk & Risk Management. To reduce the price change risks associated with holding fixed price commodity positions, we generally take opposite and offsetting positions by entering into commodity futures contracts (either a straight or options futures contract) on a regulated commodity futures exchange, the Chicago Board of Trade. While hedging activities reduce the risk of loss from increasing market prices of soybeans, such activities also limit the gain potential which otherwise could result from significant decreases in market prices of soybeans. Our policy is generally to maintain a hedged position within limits, but we can be long or short at any time. Our profitability is primarily derived from margins on soybeans processed, not from hedging transactions. Management does not anticipate that its hedging activity will have a significant impact on future operating results or liquidity. Hedging arrangements do not protect against nonperformance of a cash contract.
At any one time, our inventory and purchase contracts for delivery to the plant may be substantial. We have risk management policies and procedures that include net position limits. They are defined by commodity, and include both trader and management limits. This policy and procedure triggers a review by management when any trader is outside of position limits. The position limits are reviewed at least annually with the Board of Managers. We monitor current market conditions and may expand or reduce the limits in response to changes in those conditions.
Foreign Currency Risk. We conduct essentially all of our business in U.S. dollars and have no direct risk regarding foreign currency fluctuations. Foreign currency fluctuations do, however, impact the ability of foreign buyers to purchase U.S. agricultural products and the competitiveness of and demand for U.S. agricultural products compared to the same products offered by foreign suppliers.
Interest Rate Risk. We manage exposure to interest rate changes by using variable rate loan agreements with fixed rate options. Long-term loan agreements can utilize the fixed option through maturity; however, the revolving ability to pay down and borrow back would be eliminated once the funds were fixed.
Item 8. Financial Statements and Supplementary Data
Reference is made to the “Index to Financial Statements” of South Dakota Soybean Processors, LLC located at page F-1 of this report, and financial statements and schedules for the year ended December 31, 20032004 referenced therein, which are hereby incorporated by reference.
22
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.The independent audits covering our financial statements for the years ended December 31, 2003 and 2002, were conducted by Eide Bailly, LLP. On January 18, 2005, we accepted Eide Bailly’s resignation from its engagement to perform the audit of our financial statements for the year ended December 31, 2004. Such resignation was presented in person by representatives of Eide Bailly and approved by our Audit and Finance Committee and our Board of Managers at meetings held on January 18, 2005. Eide Bailly stated that the reason for its resignation was its concern that the assistance rendered to us by certain of Eide Bailly’s personnel in connection with the preparation of our financial statements in 2004, though believed to be de minimus, could be viewed as prohibited bookkeeping
19
services and that its independence to perform our audit for 2004 could therefore be compromised. We did not dispute Eide Bailly’s determination.
Eide Bailly performed our audit for each of the two most recent fiscal years (2002-2003) and neither of the reports on the financial statements for either of those years contained an adverse opinion or a disclaimer of opinion, or was qualified or modified as to uncertainty, audit scope, or accounting principles. We have not had any disagreements with Eide Bailly during either of our two most recent fiscal years (2002-2003) or during any subsequent interim period preceding its resignation on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreement(s), if not resolved to the satisfaction of Eide Bailly, would have caused it to make reference to the subject matter of the disagreement(s) in connection with its report. Eide Bailly has not advised us: (a) that the internal controls necessary for us to develop reliable financial statements do not exist, (b) that information has come to its attention that has led it to no longer be able to rely on management’s representations, or that has made it unwilling to be associated with the financial statements prepared by management, or (c) of the need to expand significantly the scope of its audit or that information has come to its attention that if further investigated may (i) materially impact the fairness or reliability of a previously issued audit report or the underlying financial statements with respect to the periods covered by such reports, or for any subsequent period or (ii) cause it to be unwilling to rely on management’s representations or be associated with our financial statements.
At the same meetings, our Audit and Finance Committee and Board of Managers approved the engagement of Gordon, Hughes & Banks, LLP, to perform the audit of our financial statements for the fiscal year ended December 31, 2004, and to re-review our interim financial statements for the first three quarters of 2004. Gordon, Hughes & Banks has never performed any audit services or any other accounting or advisory services for us.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures. Based on their evaluation as of the end of the period covered by this Annual Report on Form 10-K, our principal executive officer and principal financial and accounting officer have concluded that the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934) are effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.
Changes in Internal Control Over Financial Reporting. There were no changes in our internal control over financial reporting identified in connection with the evaluation of disclosure controls and procedures that occurred during our fourth fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information
None.
Part III
Item 10. Directors and Executive Officers of the Registrant
Board of Managers
Our Board of Managers consists of three members of SDSP from each of seven geographic districts, for a total of 21 Board members. Board members are elected to staggered three-year terms by the
20
members in their geographic district and currently may not serve more than three consecutive three-year terms. Generally, one Board seat in each of the seven geographical districts is elected at our annual meeting each year as required by our Operating Agreement.
The table below describes important information about the members of the Board of Managers.
Name, Address, and |
| Age |
| Board |
| Current |
| Occupation |
|
|
|
|
|
|
|
|
|
Paul Barthel |
| 35 |
| 1996 |
| 2006 |
| Paul has been a farmer for the past 18 years. He is a member of the South Dakota Soybean Association, and the South Dakota Corn Growers. Paul graduated from South Dakota State University in Brookings, SD in 1992 with a major in Ag Business and minor in Agronomy. |
|
|
|
|
|
|
|
|
|
James Call |
| 49 |
| 1995 |
| 2004 |
| James has been a farmer for the past 31 years. He belongs to the Minnesota Soybean Growers Association, Minnesota Corn Growers Association, and is a director of the Lac Qui Parle Soybean Growers. He is chairperson of the Lac Qui Parle County Farm Service Agency County Committee, and a Director of the Minnesota Soybean Research and Promotion Council. |
Name, Address, |
| Age |
| Board |
| Current |
| Occupation |
|
|
|
|
|
|
|
|
|
Paul Barthel |
| 36 |
| 1996 |
| 2006 |
| Paul has been a farmer for the past 18 years. He is a member of the South Dakota Soybean Association, and the South Dakota Corn Growers. Paul graduated from South Dakota State University in Brookings, SD in 1992 with a major in Ag Business and minor in Agronomy. |
|
|
|
|
|
|
|
|
|
Dean Christopherson |
| 56 |
| 2004 |
| 2007 |
| Dean has been a farmer for the past 32 years. He is president of Nobles County Farm Bureau and a 4-H leader. He is a past director of SouthWest Farm Management and AMPI. Dean is a trustee and committee member of First Covenant Church in Worthington, MN. He attended Worthington Community College for two years and the University of Minnesota for one year. |
|
|
|
|
|
|
|
|
|
Wayne Enger |
| 51 |
| 2004 |
| 2007 |
| Wayne has been a farmer for the past 30 years. He is secretary of the State Line Farmers Cooperative Elevator and was a board member of the Lac Qui Parle County Soybean Producers. Wayne has served as president and treasurer of the Midwest Cattlemen’s Association and is a former member of the Garfield Lutheran Church Board. Wayne graduated from University of Minnesota-Morris in 1975 with a bachelor’s degree in mathematics and German literature. |
|
|
|
|
|
|
|
|
|
Dan Feige |
| 49 |
| 1996 |
| 2005 |
| Dan has been a farmer for the past 22 years. He is a member of the National Corn Growers Association, the American Soybean Association, and a director on the South Dakota Soybean Association. He is a past delegate for Associated Milk Producers. Dan attended the University of South Dakota in Springfield, South Dakota and received an Associate Degree in Diesel Technology with a minor in Education and Business. |
|
|
|
|
|
|
|
|
|
Marvin Goplen |
| 70 |
| 1995 |
| 2005 |
| Marvin has been a farmer for the past 46 years. He is a member of the Farm Bureau, and the Minnesota Soybean Association. He is a Director of the Minnesota State Plowing Organization, and a member of the National Plowing Organization. Marvin attended the University of Minnesota, St. Paul, MN for 2 years concentrating in Agriculture |
|
|
|
|
|
|
|
|
|
Ryan J. Hill |
| 56 |
| 1995 |
| 2006 |
| Ryan has been a farmer for the past 30 years. He belongs to the National and Minnesota Corn and Soybean Growers Associations. Ryan attended Worthington Junior College, and participated in the U.S. Navy Engineering metallurgy program in 1969. |
21
Name, Address, |
| Age |
| Board |
| Current |
| Occupation |
|
|
|
|
|
|
|
|
|
Marvin Hope |
| 68 |
| 1994 |
| 2005 |
| Marvin has been a farmer for the past 46 years. He is a member of the South Dakota Soybean Association, and the American Soybean Association. He belongs to the National Corn Growers Association and the Farm Bureau. Marvin attended the Lutheran Bible Institute in Minneapolis, MN in 1956 and 1957. |
|
|
|
|
|
|
|
|
|
James H. Jepsen |
| 47 |
| 1996 |
| 2005 |
| James has been a farmer for the past 28 years. He is currently a member and was the former President of the South Dakota Soybean Association. Jim attended South Dakota State University in Brookings, SD and received an Associate of Arts Degree in Agriculture and General Ag in 1977. |
|
|
|
|
|
|
|
|
|
Peter Kontz |
| 62 |
| 1998 |
| 2007 |
| Peter has been a farmer for the past 37 years. He is a member of the South Dakota Cattlemen’s Association (Treasurer for four years), South Dakota Corn Growers Association, and the South Dakota Soybean Association. He attended the School of Agriculture in Brookings, SD. |
|
|
|
|
|
|
|
|
|
Laron Krause | 44 | 2004 | 2007 | Laron has been a farmer for the past 26 years. He is a member of the South Dakota Soybean Association and a former president of the South Dakota Soybean Association, and a member of the Deuel County Memorial Hospital Board of Directors. Laron graduated from Canby Vocational Tech in Canby, MN in 1980 with a degree in Production Agriculture. | ||||
|
|
|
|
|
|
|
|
|
Bryce Loomis |
| 62 |
| 1998 |
| 2007 |
| Bryce has been a farmer and seed sales representative for the past 36 years. He belongs to the National Corn Growers Association, the South Dakota Soybean Producers Association, and the Farm Bureau. |
|
|
|
|
|
|
|
|
|
Gerald Moe |
| 67 |
| 1994 |
| 2005 |
| Gerald is a retired farmer, and was an active farmer for 45 years prior to retirement. He also has been a District Sales Manager for a major seed company for 10 years in the past. He is a member of the American Soybean Association, as well as a member of the Board of Directors for the Citizens State Bank in Arlington, SD. Gerald attended Augustana College for one year in Sioux Falls, SD. |
|
|
|
|
|
|
|
|
|
Dale Murphy |
| 74 |
| 1994 |
| 2006 |
| Dale is a retired farmer, and was an active farmer for the previous 38 years. He was a director of the First National Bank in White, SD during 1987-1999. Dale attended Nettleton Commercial College in Sioux Falls, SD and earned a certificate in auditing and accounting in 1957. |
|
|
|
|
|
|
|
|
|
Maurice Odenbrett |
| 59 |
| 1995 |
| 2005 |
| Maurice has been a farmer for the past 39 years. He is a supervisor for the Belfast Township and serves as Vice Chairperson for the Murray County Township association. |
22
Name, Address, |
| Age |
| Board |
| Current |
| Occupation |
|
|
|
|
|
|
|
|
|
Daniel Potter |
| 73 |
| 1995 |
| 2006 |
| Daniel has been a farmer for the past 52 years and is a 50% owner of Potterosa Farms, Inc. He belongs to the Redwood County Cattlemen’s Association, and the National Cattlemen’s Association. He is also a supervisor of the Redwood Soil and Water Conservation District and chairs the church Admin Council. |
|
|
|
|
|
|
|
|
|
Steven C. Preszler |
| 46 |
| 2004 |
| 2005 |
| Steven has been a farmer for the past 27 years. He is director and vice president of Lumber Yard Board. Steven is also the past president of Jaycees of Menno and treasurer of the Salem Reformed Church. |
|
|
|
|
|
|
|
|
|
Rodney Skalbeck |
| 70 |
| 1995 |
| 2006 |
| Rodney has been a farmer for the past 51 years. He belongs to the Farmers Union, Land Stewardship Project and is a former Director of the Farm Credit association where he has had positions as chairman and vice chairman. He is also a former school board member and church board member and treasurer. |
|
|
|
|
|
|
|
|
|
Lyle R. Trautman |
| 51 |
| 1996 |
| 2005 |
| Lyle has been a farm operator and manager for the past 31 years. He is a member of the Lincoln County Soybean Growers Association, the Minnesota Soybean Growers Association, and the Minnesota Corn Growers Association. He is also a member of the Lake Benton City Council. Lyle attended Mankato State College for two years, and University of Minnesota for two quarters. |
|
|
|
|
|
|
|
|
|
Delbert Tschakert |
| 49 |
| 1994 |
| 2006 |
| Delbert has been a farmer for the past 26 years, producing corn, soybeans, and hay commodities. He is a member of the South Dakota Soybean Association, the South Dakota Corn Growers Association, and former President of the South Dakota Soybean Association. Delbert is a graduate of South Dakota State University in Brookings, SD. In 1977, he received his BS in Ag Communications with a minor in Economics. |
|
|
|
|
|
|
|
|
|
Anthony Van Uden |
| 66 |
| 1996 |
| 2007 |
| Anthony has been a farmer for the past 44 years. He is a member of Minnesota Soybean Association, and the American Legion. He is a past Director of the Farmers Elevator Company, Cottonwood, MN, Lucas Town board, as Chairman, and the Lyon County Planning and Zoning Committee. |
|
|
|
|
|
|
|
|
|
Ardon Wek |
| 47 |
| 1996 |
| 2006 |
| Ardon has been a farmer for the past 26 years. He is a member of the South Dakota Corn Growers, and the South Dakota Soybean Association. Ardon graduated from Mitchell Technical College in Mitchell, SD. His major was Architectural Drafting, and Building Construction. |
23
Name, Address, and |
| Age |
| Board |
| Current |
| Occupation |
Paul W. Casper |
| 45 |
| 1994 |
| 2004 |
| Paul has been a farmer for the past 26 years. He is a member of the South Dakota Soybean Association, and past 1st Vice President, South Dakota Corn Growers, National Corn Growers, and South Dakota Ag Producers Ventures. Paul attended Dakota State University in Madison, SD for one year. |
|
|
|
|
|
|
|
|
|
Dan Feige |
| 49 |
| 1996 |
| 2005 |
| Dan has been a farmer for the past 22 years. He is a member of the National Corn Growers Association, the American Soybean Association, and a director on the South Dakota Soybean Association. He is a past delegate for Associated Milk Producers. Dan attended the University of South Dakota in Springfield, South Dakota and received an Associate Degree in Diesel Technology with a minor in Education and Business. |
|
|
|
|
|
|
|
|
|
Marvin Goplen Canby, MN 56220 |
| 69 |
| 1995 |
| 2005 |
| Marvin has been a farmer for the past 46 years. He is a member of the Farm Bureau, and the Minnesota Soybean Association. He is a Director of the Minnesota State Plowing Organization, and a member of the National Plowing Organization. Marvin attended the University of Minnesota, St. Paul, MN for 2 years concentrating in Agriculture |
|
|
|
|
|
|
|
|
|
Ryan J. Hill Worthington, MN |
| 55 |
| 1995 |
| 2006 |
| Ryan has been a farmer for the past 30 years. He belongs to the National and Minnesota Corn and Soybean Growers Associations. Ryan attended Worthington Junior College, and participated in the U.S. Navy Engineering metallurgy program in 1969. |
|
|
|
|
|
|
|
|
|
Marvin Hope |
| 67 |
| 1994 |
| 2005 |
| Marvin has been a farmer for the past 46 years. He is a member of the South Dakota Soybean Association, and the American Soybean Association. He belongs to the National Corn Growers Association and the Farm Bureau. Marvin attended the Lutheran Bible Institute in Minneapolis, MN in 1956 and 1957. |
|
|
|
|
|
|
|
|
|
James H. Jepsen |
| 47 |
| 1996 |
| 2005 |
| James has been a farmer for the past 28 years. He is currently a member and was the former President of the South Dakota Soybean Association. Jim attended South Dakota State University in Brookings, SD and received an Associate of Arts Degree in Agriculture and General Ag in 1977. |
|
|
|
|
|
|
|
|
|
Peter Kontz |
| 61 |
| 1998 |
| 2004 |
| Peter has been a farmer for the past 37 years. He is a member of the South Dakota Cattlemen’s Association (Treasurer for four years), South Dakota Corn Growers Association, and the South Dakota Soybean Association. He attended the School of Agriculture in Brookings, SD. |
|
|
|
|
|
|
|
|
|
Bryce Loomis |
| 61 |
| 1998 |
| 2004 |
| Bryce has been a farmer and seed sales representative for the past 36 years. He belongs to the National Corn Growers Association, the South Dakota Soybean Producers Association, and the Farm Bureau. |
24
Name, Address, and |
| Age |
| Board |
| Current |
| Occupation |
Gerald Moe |
| 67 |
| 1994 |
| 2005 |
| Gerald is a retired farmer, and was an active farmer for the previous 45 years. He also has been a District Sales Manager for a major seed company for 10 years in the past. He is a member of the American Soybean Association, as well as director of the Citizens State Bank in Arlington, SD. Gerald attended Augustana College for one year in Sioux Falls, SD. |
|
|
|
|
|
|
|
|
|
Dale Murphy |
| 73 |
| 1994 |
| 2006 |
| Dale is a retired farmer, and was an active farmer for the previous 38 years. He was a director of the First National Bank in White, SD during 1987-1999. Dale attended Nettleton Commercial College in Sioux Falls, SD and earned a certificate in auditing and accounting in 1957. |
|
|
|
|
|
|
|
|
|
Robert Nelsen |
| 63 |
| 1995 |
| 2004 |
| Robert is a retired farmer and Vice President of Environmental Dust Control. During the past 40 years, he was an active farmer. He is a director of the Westbrook Lions Club and a V.F.W. member. He is also a member of the American Highland Cattle Association, the Minnesota and National Corn Growers Associations, and the American Soybean Growers Association, where he has been a state director. He is State Director for the Murray County Soy Growers and belongs to Farm Bureau. |
|
|
|
|
|
|
|
|
|
Maurice Odenbrett |
| 58 |
| 1995 |
| 2005 |
| Maurice has been a farmer for the past 39 years. He is a supervisor for the Belfast Township and serves as Vice Chairperson for the Murray County Township association. |
|
|
|
|
|
|
|
|
|
Daniel Potter |
| 72 |
| 1995 |
| 2006 |
| Daniel has been a farmer for the past 52 years and is a 50% owner of Potterosa Farms, Inc. He belongs to the Redwood County Cattlemen’s Association, and the National Cattlemen’s Association. He is also a supervisor of the Redwood Soil and Water Conservation District and chairs the church Admin Council. |
|
|
|
|
|
|
|
|
|
Corey Schnabel |
| 45 |
| 1994 |
| 2004 |
| Corey has been a farmer for the past 24 years. He is also a Grandview Township supervisor. He belongs to the South Dakota and National Corn Growers Association, the South Dakota and American Simmental Association. He is also a former director of the South Dakota Corn Growers Association and National Corn Growers Association. Corey is a graduate of Lake Area Technical Institute in Watertown, South Dakota. He earned an Associate degree in Ag Business in 1980. |
|
|
|
|
|
|
|
|
|
Rodney Skalbeck |
| 70 |
| 1995 |
| 2006 |
| Rodney has been a farmer for the past 51 years. He belongs to the Farmers Union, Land Stewardship Project and is a former Director of the Farm Credit association where he has had positions as chairman and vice chairman. He is also a former school board member and church board member and treasurer. |
25
Name, Address, and |
| Age |
| Board |
| Current |
| Occupation |
Lyle R. Trautman |
| 50 |
| 1996 |
| 2005 |
| Lyle has been a farm operator and manager for the past 31 years. He is a member of the Lincoln County Soybean Growers Association, the Minnesota Soybean Growers Association, and the Minnesota Corn Growers Association. He is also a member of the Lake Benton City Council. Lyle attended Mankato State College for two years, and University of Minnesota for two quarters. |
|
|
|
|
|
|
|
|
|
Delbert Tschakert |
| 48 |
| 1994 |
| 2006 |
| Delbert has been a farmer for the past 26 years, producing corn, soybeans, and hay commodities. He is a member of the South Dakota Soybean Association, the South Dakota Corn Growers Association, and former President of the South Dakota Soybean Association. Delbert is a graduate of South Dakota State University in Brookings, SD. In 1977, he received his BS in Ag Communications with a minor in Economics. |
|
|
|
|
|
|
|
|
|
Anthony Van Uden 3461 300th Ave. 56229 |
| 66 |
| 1996 |
| 2004 |
| Anthony has been a farmer for the past 44 years. He is a member of Minnesota Soybean Association, and the American Legion. He is a past Director of the Farmers Elevator Company, Cottonwood, MN, Lucas Town board, as Chairman, and the Lyon County Planning and Zoning Committee. |
|
|
|
|
|
|
|
|
|
Ardon Wek |
| 46 |
| 1996 |
| 2006 |
| Ardon has been a farmer for the past 26 years. He is a member of the South Dakota Corn Growers, and the South Dakota Soybean Association. Ardon graduated from Mitchell Technical College in Mitchell, SD. His major was Architectural Drafting, and Building Construction. |
Compensation of Board of Managers
Members of the Board of Managers are currently provided a per diem payment for services performed in the amount of $150 for each function requiring more than four hours, and $75 for each function requiring less than four hours. In addition to the per diem fee, mileage reimbursement is provided at current IRS rates.
Committees of Board of Managers
The Board of Managers has formed the following committees: finance and audit committee, nomination committee, governance committee, public relations committee, and planning committee. The current members of the Audit Committee are Daniel Potter, who serves as the chairperson of the committee, Wayne Enger, Dan Feige, Maurice Odenbrett, Anthony Van Uden, Paul Casper, Paul Barthel, and Ardon Wek. Because our Board members are generally farmers, as is common for formerproducer-based agricultural cooperatives,entities, we do not have an audit committee financial expert serving on our finance and audit committee. The Board, however, has selected members for the finance and audit committee based on the Board’s determination that they are fully qualified to monitor management, our internal accounting operations and the independent auditors and are fully qualified to monitor our disclosures to assure that they fairly present our financial condition and results of operations In addition, the finance and audit committee has the authority to engage advisers as it deems necessary to assist it in carrying out its duties.
26
In March 2004, we established a Nomination Committee and adopted a Nomination Committee charter that is available for review on our website at http://www.sdsbp.com. The members of the Nomination Committee are James Call,Paul Barthel, Ryan Hill, Dale Murphy, Rodney Skalbeck, Delbert Tschakert, Tony VanUden, and Robert Nelsen.Ardon Wek. In order to submit a nominee for the Board to the Nomination Committee for the 20042005 Annual Meeting, members were required to return a member must return the Nomination Petition Form that was mailed to members on March 19, 2004nomination petition form to the Nomination Committee no later than March 31, 2004.2005. Nominations will not be accepted from the floor at the 2005 Annual Meeting. The members of the Nomination Committee will review each of the submitted forms during their selection process and may also search for and contact additional potential nominees inat their discretion.
Executive Officers
The following individuals serve as our executive officers in the capacities listed. These officers serve at the discretion of the Board of Managers and can be terminated without notice. There is currently a vacancy in our chief financial officer position. Our management and key personnel along with the assistance of outside advisors are assuming the functions that our chief financial officer previously performed. We are evaluating our needs to determine whether we will hire a person to serve as our chief financial officer.
Name | Age | Position | ||
|
|
|
|
|
Rodney G. Christianson |
|
|
| Chief Executive Officer |
Thomas J. Kersting |
|
|
| Commercial Manager |
James A. Seurer | 41 | Chief Financial Officer |
Rodney G. Christianson, Chief Executive Officer. Rodney joined us as the Chief Executive Officer when operations began in 1996. With 20 years of service with Cargill, Inc. in its Food, Industrial, and Oilseed Sectors, Rodney came to us with significant operational and managerial experience in the U.S. and Brazil. A member of the management team for the Greenfield construction and start up of
24
Cargill’s sunflower plant in West Fargo, North Dakota, Rodney’s experience helped direct our difficult startup toward a financially successful first year of operations.
Rodney is a Minnesota farm native, and received his B.S. in Engineering from North Dakota State University. He holds a Professional Engineer’s License.
Rodney has complete responsibility for our operations.
Thomas J. Kersting, Commercial Manager. Tom joined us as the Procurement Manager when operations began in 1996, and since 1998 has served as the Commercial Manager. Tom was affiliated with Harvest States Cooperative from July 1988 until May 1996. Tom held such positions as Market Analyst/Advisor and Head Procurement Merchandiser for Harvest States Cooperative throughout North Dakota, South Dakota, and Minnesota. As a market analyst, Tom assisted grain elevator profitability by using advanced management and marketing techniques while incorporating specific risk management procedures.
Tom graduated from the University of Minnesota’s College of Agriculture with a B.S. in Agricultural Business Administration with an emphasis in operations management. Tom is a licensed commodity broker, a director of the National Oilseed Processors Association, a voting member of the National Biodiesel Board and our contact for the Chicago Board of Trade.
Tom is responsible for all futures trading strategies, as well as merchandising commodity products, and soybean and natural gas procurement.
27
Family RelationshipsJames A. Seurer, Chief Financial Officer.After spending nearly 18 years in the financial institution industry, Jim joined us as Chief Financial Officer on March 14, 2005. Most recently, Jim has four years of service with Red Rocks Federal Credit Union in Highlands Ranch, Colorado (Denver) as Vice President/Chief Financial Officer. Prior to that Jim served for 14 years as a Federal Examiner and Problem Case Officer with the National Credit Union Administration and he spent a short time in a similar capacity with the State of Colorado.
Paul CasperJim received a B.S. in Business Administration with emphasis in Accounting and Business Management in 1986 from Northern State University in Aberdeen, SD. Jim is Gerald Moe’s son-in-law; otherwise, no family relationship exists between anya licensed Certified Public Accountant (CPA) in the State of our Board members, officers, or key employees.Colorado and a member of the Colorado Society of CPAs.
Code of Ethics
We have adopted a written code of ethics, which applies to our principal executive officer, principal financial and accounting officer, controller or persons performing similar functions. A copy of the code of ethics is filed as Exhibit 14.1 to this Report.
Compliance with Reporting Requirements of Section 16 of the Exchange Act
Under Section 16(a) of the Exchange Act, our directors, executive officers and any persons holding 10% or more of the common stock are required to report their ownership of our capital units and any changes in that ownership to the Securities and Exchange Commission (the “SEC”) and to furnish us with copies of such reports. Specific due dates for these reports have been established and we are required to disclose in this report any failure to file on a timely basis by such persons. To our knowledge, based solely upon a review of copies of such reports received by us which were filed with the SEC from January 1, 20032004 through March 30, 2004,15, 2005, and upon written representations from such persons that no other reports were required, we believe that all reports required to be filed under Section 16(a) for 2004 have been timely filed with the SEC.SEC, other than the Form 3s filed by Messrs. Dean Christopherson, Wayne Enger, and Laron Krause following their election to our Board.
25
Item 11. Executive Compensation
Summary Compensation Table. The following table sets forth all the compensation we paid during the years ended December 31, 2004, 2003, 2002 and 20012002 to our principal executive officer and each officer paid over $100,000 in our last fiscal year (the “named executive officers”). Jim Seurer was hired as our Chief Financial Officer as of March 14, 2005 and received no compensation from us during the years ended December 31, 2004, 2003, and 2002. No other officers received total compensation exceeding $100,000 during the year ended December 31, 2003.2004.
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|
|
| Annual Compensation |
| Long-Term Compensation |
|
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| ||||||||
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|
|
|
| Awards |
| Payouts |
|
|
| ||
Name and |
| Year |
| Salary |
| Bonus |
| Other |
| Restricte |
| Securities |
| LTIP |
| All Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rodney G. Christianson |
| 2003 |
| 200,000 |
| 36,190 |
| 3,855 |
| — |
| — |
| — |
| 3,855 |
|
Chief Executive Officer |
| 2002 |
| 200,000 |
| 64,528 |
| 3,625 |
| — |
| — |
| — |
| 3,597 |
|
|
| 2001 |
| 186,666 |
| 100,135 |
| 3,625 |
| — |
| — |
| — |
| 17,208 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thomas J. Kersting |
| 2003 |
| 103,792 |
| 12,500 |
| — |
| — |
| — |
| — |
| 13,299 |
|
Commercial Manager |
| 2002 |
| 99,167 |
| 24,000 |
| — |
| — |
| — |
| — |
| 11,520 |
|
|
| 2001 |
| 90,000 |
| 40,000 |
| — |
| — |
| — |
| — |
| 9,931 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Larry E. Mahlum (1) |
| 2003 |
| 96,228 |
| 8,700 |
| — |
| — |
| — |
| — |
| — |
|
Operations Manager |
| 2002 |
| 95,000 |
| 16,000 |
| — |
| — |
| — |
| — |
| — |
|
|
| 2001 |
| 95,000 |
| 33,000 |
| — |
| — |
| — |
| — |
| — |
|
(1) Mr. Mahlum retired in January 2004.
|
|
|
| Annual Compensation |
| Long-Term Compensation |
|
|
| ||||||||
|
|
|
|
|
|
|
|
|
| Awards |
| Payouts |
|
|
| ||
Name and |
| Year |
| Salary |
| Bonus |
| Other |
| Restricte |
| Securities |
| LTIP |
| All Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rodney G. Christianson |
| 2004 |
| 245,833 |
| 20,894 |
| 4,590 |
| — |
| — |
| — |
| 4,196 |
|
Chief Executive Officer |
| 2003 |
| 200,000 |
| 36,190 |
| 3,855 |
| — |
| — |
| — |
| 3,855 |
|
|
| 2002 |
| 200,000 |
| 64,528 |
| 3,625 |
| — |
| — |
| — |
| 3,597 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thomas J. Kersting |
| 2004 |
| 110,750 |
| 14,200 |
| — |
| — |
| — |
| — |
| 2,780 |
|
Commercial Manager |
| 2003 |
| 103,792 |
| 12,500 |
| — |
| — |
| — |
| — |
| 13,299 |
|
|
| 2002 |
| 99,167 |
| 24,000 |
| — |
| — |
| — |
| — |
| 11,520 |
|
On February 1, 2004, we entered into a four-year employment agreement with Mr. Christianson that expires on January 31, 2008. Under the employment agreement, Mr. Christianson will receive an annual salary of $250,000 through August 31, 2005 and an annual salary of $300,000 for the remaining term of the Agreement. Mr. Christianson is also entitled to receive an incentive bonus equal to one-half of one percent of net income before taxes and member distributions, excluding certain extraordinary items of income and expense, on up to $5.0 million net income, or 1% of net income before taxes and member
28
distributions if net income exceeds $5.0 million. Mr. Christianson may elect to have his incentive bonus paid directly or deferred. Mr. Christianson is also entitled to participate in 401(k), healthcare and other retirement and welfare benefit programs that are generally available to employees and a vehicle to be used for business purposes. Mr. Christianson is entitled to eighteen months of severance pay in the event that we terminate his employment during the term of the agreement, other than for cause. Mr. Christianson’s employment contract is terminable at will by the Board of Managers without cause, and may be terminated by Mr. Christianson with 60 days’ notice. The employment agreement also includes a two-year non-competition provision.
Mr. Kersting has an employment agreement with us that is terminable at will. Mr. Kersting receives a base salary and is entitled to participate in 401(k), healthcare and other retirement and welfare benefit programs that are generally available to employees, including the employee profit sharing program which allocates 4% of net profits over $2 million to all employees other than Mr. Christianson. Individual amounts are allocated and distributed to employees based on a formula that takes into account current salary level, level of responsibility and the impact of the employee’s position on profits.
Messrs. Christianson and Kersting also have a deferred compensation plan that provides “phantom” capital units. Messr.Messrs. Christianson and Kersting’s initial grants under these plans are fully vested. On February 1, 2004, Mr. Christianson received an additional grant under an amended and restated deferred compensation plan. Under both the original and amended plan, we will pay an amount equal to the fair market value of the participant’s vested phantom capital units in five annual substantially equal installments beginning upon the earlier of termination of employment with us or his 65th birthday. In lieu of participating
Mr. Seurer’s employment with us is terminable at will. Mr. Seurer receives a base salary and is entitled to participate in 401(k), healthcare and other retirement and welfare benefit programs that are generally available to employees, including the phantom capital unit plan, Mr. Mahlum receives an amount equal to 2% of the first $10 million, and 1% thereafter, of our net proceeds from the sale of all polyol products for a period of 10 years. However, to date we have not had any significant sales of polyol products and no payments have been made under this agreement.employee profit sharing program.
26
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
We do not have any compensation plans under which our capital units are authorized for issuance.
The following table sets forth the beneficial ownership of our outstanding capital units by our Board members and named executive officers as of March 30, 2004.April 11, 2005. As of that date, no person beneficially owned more than 5% of our capital units.
Name and Address |
| Number of Votes |
| Voting |
| Number of |
| Ownership |
|
|
|
|
|
|
|
|
|
|
|
Paul Barthel, Manager |
| 1 |
| * |
| 10,500 |
| * |
|
James Call, Manager (2) |
| 2 |
| * |
| 22,000 |
| * |
|
Paul Casper, President, Manager |
| 1 |
| * |
| 60,000 |
| * |
|
Rodney Christianson, CEO (3) |
| 1 |
| * |
| 10,500 |
| * |
|
Dan Feige, Manager |
| 1 |
| * |
| 30,000 |
| * |
|
Marvin Goplen, Manager (4) |
| 1 |
| * |
| 18,000 |
| * |
|
Ryan Hill, Manager (5) |
| 2 |
| * |
| 22,500 |
| * |
|
Marvin Hope, Vice President, Manager (6) |
| 1 |
| * |
| 56,000 |
| * |
|
Jim Jepsen, Manager |
| 1 |
| * |
| 30,000 |
| * |
|
Peter Kontz, Manager (7) |
| 2 |
| * |
| 99,000 |
| * |
|
Bryce Loomis, Manager (8) |
| 1 |
| * |
| 30,000 |
| * |
|
Gerald Moe, Manager (9) |
| 1 |
| * |
| 45,000 |
| * |
|
Dale Murphy, Manager (10) |
| 1 |
| * |
| 80,000 |
| * |
|
Robert Nelsen, Manager |
| 1 |
| * |
| 21,000 |
| * |
|
Maurice Odenbrett, Manager |
| 1 |
| * |
| 36,000 |
| * |
|
Daniel Potter, Manager (11) |
| 2 |
| * |
| 16,500 |
| * |
|
Corey Schnabel, Secretary, Manager |
| 1 |
| * |
| 15,000 |
| * |
|
Rodney Skalbeck, Manager |
| 1 |
| * |
| 105,000 |
| * |
|
Lyle Trautman, Manager (12) |
| 1 |
| * |
| 13,500 |
| * |
|
Delbert Tschakert, Manager (13) |
| 2 |
| * |
| 42,000 |
| * |
|
Tony Van Uden, Manager |
| 1 |
| * |
| 60,000 |
| * |
|
Ardon Wek, Manager (14) |
| 1 |
| * |
| 30,000 |
| * |
|
|
|
|
|
|
|
|
|
|
|
Managers and Executive Officers, as a group |
| 27 |
| 1.29% |
| 852,500 |
| 3.02% |
|
29
Name and Address |
| Number of Votes |
| Voting |
| Number of |
| Ownership |
|
|
|
|
|
|
|
|
|
|
|
Paul Barthel, Manager |
| 1 |
|
| * | 10,500 |
|
| * |
Rodney Christianson, CEO(2) |
| 1 |
|
| * | 10,500 |
|
| * |
Dean Christopherson, Manager |
| 1 |
|
| * | 30,000 |
|
| * |
Wayne Enger, Manager |
| 1 |
|
| * | 13,000 |
|
| * |
Dan Feige, Vice President, Manager |
| 1 |
|
| * | 30,000 |
|
| * |
Marvin Goplen, Manager(3) |
| 1 |
|
| * | 18,000 |
|
| * |
Ryan Hill, Manager(4) |
| 2 |
|
| * | 22,500 |
|
| * |
Marvin Hope, President, Manager(5) |
| 1 |
|
| * | 56,000 |
|
| * |
Jim Jepsen, Manager |
| 1 |
|
| * | 30,000 |
|
| * |
Tom Kersting, Commercial Manager |
| — |
|
| * | — |
|
| * |
Peter Kontz, Manager(6) |
| 2 |
|
| * | 119,000 |
|
| * |
Laron Krause, Manager |
| 1 |
|
| * | 12,000 |
|
| * |
Bryce Loomis, Manager(7) |
| 1 |
|
| * | 35,000 |
|
| * |
Gerald Moe, Manager(8) |
| 1 |
|
| * | 45,000 |
|
| * |
Dale Murphy, Manager(9) |
| 1 |
|
| * | 80,000 |
|
| * |
Maurice Odenbrett, Manager |
| 1 |
|
| * | 36,000 |
|
| * |
Daniel Potter, Manager(10) |
| 2 |
|
| * | 16,500 |
|
| * |
Steven C. Preszler, Manager |
| 1 |
|
| * | 15,000 |
|
| * |
Jim Seurer, CFO |
| — |
|
| * | — |
|
| * |
Rodney Skalbeck, Manager |
| 1 |
|
| * | 105,000 |
|
| * |
Lyle Trautman, Manager(11) |
| 1 |
|
| * | 13,500 |
|
| * |
Delbert Tschakert, Manager(12) |
| 2 |
|
| * | 42,000 |
|
| * |
Tony Van Uden, Manager |
| 1 |
|
| * | 60,000 |
|
| * |
Ardon Wek, Secretary, Manager(13) |
| 1 |
|
| * | 30,000 |
|
| * |
|
|
|
|
|
|
|
|
| * |
Managers and Executive Officers, as a group |
| 26 |
| 1.24 | % | 829,500 |
| 2.93 | % |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| * Percentage of shares beneficially owned does not exceed 1% of the class. (1) The addresses for each of the individual managers listed are set forth under Board of Managers above. (2) Represents capital units owned of record by Mr. Christianson’s wife, Heidi Christianson. (3) Represents capital units owned of record by the Marvin and Mary Ann Goplen Revocable Living Trust of which Mr. Goplen is a trustee. (4) Includes 10,000 capital units owned of record by Mr. Hill’s wife, Naomi Hill. (5) Represents capital units owned of record by the Marvin H. Hope Trust of which Mr. Hope is a trustee. (6) Includes 73,000 capital units owned of record by Mr. Kontz’s wife, Alyce Kontz. (7) Represents capital units owned jointly with Mr. Loomis’s wife, Georgean Loomis. (8) Represents capital units owned jointly with Mr. Moe’s wife, Kaye Moe. (9) Represents capital units owned of record by the Dale F. Murphy Revocable Trust of which Mr. Murphy is a trustee. 27 (10) Includes 7,500 capital units owned of record by Potterosa Farms, Inc. of which Mr. Potter is a co-owner. (11) Represents capital units owned jointly with Mr. Trautman’s wife, Pam Trautman. (12) Includes 17,500 capital units owned of record by Mr. Tschakert’s wife, Kay Tschakert. (13) Represents capital units owned of record jointly with Mr. Wek’s wife, Sheila Wek. |
Item 13. Certain Relationships and Related Transactions
The individual Board members and executive officers of the LLC have not entered into, and do not anticipate entering into, any contractual or other transactions between themselves and SDSP, except for continuing employment agreements, as described above under “Compensation of Management and Executive Officers,” the Operating Agreement of SDSP, and soybean purchases that are on the same terms available to the public. None of the individual Board members or executive officers received any compensation relative to the distribution of capital units of the new LLC upon the liquidation of the predecessor cooperative. However, the Board Members receive a per diem fee and other reimbursement and compensation for their Board services, as described above. The executive officers receive compensation as executive officers as described above.
Item 14. Principal Accountant Fees and Services
The fees paid to Eide Bailly LLP in 2004, by category, were as follows:
Audit fees |
| $ | 76,555 |
|
Audit-related fees |
| $ | 916 |
|
(essentially, assurance and related services related to the audit)
Tax fees |
| $ | 20,754 |
|
All other fees |
| $ | 4,739 |
|
The fees paid to Eide Bailly LLP in 2003, by category, were as follows:
Audit fees |
| $ | 53,234 |
|
Audit-related fees |
| $ | 2,985 |
|
Tax fees |
| $ | 23,447 |
|
All other fees |
| $ | 4,679 |
|
Audit fees |
| $ | 53,234 |
|
Audit-related fees |
| $ | 2,985 |
|
(essentially, assurance and related services related to the audit)
Tax fees |
| $ | 23,447 |
|
All other fees |
| $ | 4,679 |
|
“Audit related fees” were for out-of-pocket expenses. “All other fees” were for the fees associated with the acquisition of the USSC.
30
TheWe did not pay any fees paidin 2004 or 2003 to Eide Bailly LLP in 2002, by category, were as follows:
Audit fees |
| $ | 137,406 |
|
Audit-related fees |
| $ | 14,204 |
|
Tax fees |
| $ | 2,756 |
|
All other fees |
| $ | 14,112 |
|
“Audit fees” for 2002 including audit fees related to our reorganization from a cooperative to an LLC and the conversion of our year-end from August 31st to December 31st. “All other fees” were for fees related to diligence conducted prior to our acquisition of a majority interest in USSC.Gordon, Hughes, & Banks, LLP.
The Audit Committee Charter provides that the Audit Committee shall approve in advance any fees related to non-audit services. Accordingly, our auditor submits to the Audit Committee a notice of services proposed to be provided and the associated fees prior to the provision of any non-audit services. During 20032004 all such non-audit fees were pre-approved by the Audit Committee.
Part IV
Item 15. Exhibits and Financial Statement Schedules and Reports on Form 8-K
The following exhibits and financial statements are filed as part of, or are incorporated by reference into, this report:
28
(a) Financial Statements and Schedules – Reference is made to the “Index to Financial Statements” of South Dakota Soybean Processors, LLC located at page F-1 of this report for a list of the financial statements and schedules for the year ended December 31, 20032004 included herein.
(b)Reports on Form 8-K – We did not file any reports on Form 8-K during the quarter ended December 31, 2003.
(c) Exhibits - See Exhibit Index following the Signature Page to this report. The following exhibits constitute management agreements, compensatory plans, or arrangementsarrangements: Exhibits 10.14, 10.15, 10.16, and 10.17.
3129
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| SOUTH DAKOTA | ||
SOYBEAN PROCESSORS, LLC | |||
|
| ||
|
| ||
|
| ||
Dated: April 15, 2005 |
|
| |
| By |
| |
Rodney G. Christianson | |||
|
|
| |
Chief Executive Officer | |||
POWER OF ATTORNEY
Each of the undersigned officers and members of the Board of Managers of South Dakota Soybean Processors, LLC hereby appoints each of Rodney Christianson and Mark Hyde,James Seurer, jointly and severally, his attorneys-in-fact and agent for the undersigned, each with full power of substitution, for him and in the name, place and stead of the undersigned, to sign and file with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended, any and all amendments and exhibits to this Annual Report on Form 10-K, with full power and authority to do and perform any and all acts and things whatsoever requisite and necessary or desirable.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons in the capacities indicated on March 30, 2004.April 15, 2005.
SIGNATURE | TITLE | |
|
|
|
/s/ Rodney G. Christianson |
| Chief Executive Officer |
Rodney G. Christianson |
| (Principal Executive Officer) |
|
|
|
/s/ |
|
|
|
| (Principal Financial and Accounting Officer) |
|
|
|
/s/ Paul Barthel |
| Manager |
Paul Barthel |
|
|
|
|
|
/s/ |
| Manager |
|
|
|
|
|
|
/s/ |
| Manager |
| ||
|
| |
|
|
|
|
|
|
/s/ Dan Feige |
| Manager |
Dan Feige |
|
|
32
/s/ Marvin Goplen |
| Manager |
Marvin Goplen |
|
|
30
/s/ Ryan J. Hill |
| Manager |
Ryan J. Hill |
|
|
|
|
|
/s/ Marvin Hope |
| Manager |
Marvin Hope |
|
|
|
|
|
/s/ James H. Jepsen |
| Manager |
James H. Jepsen |
|
|
|
|
|
/s/ Peter Kontz |
| Manager |
Peter Kontz |
|
|
|
|
|
/s/ Laron Krause | Manager | |
Laron Krause | ||
/s/ Bryce Loomis |
| Manager |
Bryce Loomis |
|
|
|
|
|
/s/ Gerald Moe |
| Manager |
Gerald Moe |
|
|
|
|
|
/s/ Dale F. Murphy |
| Manager |
Dale F. Murphy |
|
|
|
|
|
/s/ Maurice |
| Manager |
Maurice Odenbrett |
|
|
|
|
|
/s/ Daniel Potter |
| Manager |
Daniel Potter |
|
|
|
|
|
/s/ |
| Manager |
|
|
|
|
|
|
/s/ Rodney Skalbeck |
| Manager |
Rodney Skalbeck |
|
|
|
|
|
/s/ Lyle R. Trautman |
| Manager |
Lyle R. Trautman |
|
|
|
|
|
/s/ Delbert Tschakert |
| Manager |
Delbert Tschakert |
|
|
|
|
|
/s/ Anthony VanUden |
| Manager |
Anthony VanUden |
|
|
|
|
|
/s/ Ardon Wek |
| Manager |
Ardon Wek |
|
|
3331
EXHIBIT INDEX
Exhibit | Description | Filed | Incorporated Herein by Reference to | |||
|
|
|
|
|
|
|
3.1(i) |
| Articles of Organization |
|
|
| Appendix |
|
|
|
|
|
|
|
3.1(ii) |
| Operating Agreement, as |
|
|
|
|
|
|
|
|
|
|
|
3.1(iii) |
| Articles of Amendment to Articles of Organization |
|
|
| Exhibit 3.1(iii) to the Issuer’s Form 10-QSB filed with the Commission on August 14, 2002 |
|
|
|
|
|
|
|
4.1 |
| Form of Class A Unit Certificate |
|
|
| Exhibit 4.1 to the Issuer’s Form S-4 filed with the Commission on December 21, 2001 (File No. 333-75804) |
|
|
|
|
|
|
|
10.1 |
| Form of Mortgage and Security Agreement with CoBank dated October 2, 1995 |
|
|
| Exhibit 10.1 to the Issuer’s Form S-4 filed with the Commission on December 21, 2001 (File No. 333-75804) |
|
|
|
|
|
|
|
10.2 |
| Master Loan Agreement with CoBank dated |
|
|
| Exhibit 10.2 to the Issuer’s Form |
|
|
|
|
|
|
|
10.3 |
| Revolving Term Loan Supplement with CoBank dated |
|
|
| Exhibit 10.3 to the Issuer’s Form |
|
|
|
|
|
|
|
10.4 |
| Statused Revolving Credit Supplement with CoBank dated |
|
|
| Exhibit 10.4 to the Issuer’s Form |
|
|
|
|
|
|
|
10.5 |
| Urethane Soy Systems Company, Inc. Stock Purchase Agreement dated May 30, 2000 |
|
|
| Exhibit 10.5 to the Issuer’s Form S-4 filed with the Commission on December 21, 2001 (File No. 333-75804) |
|
|
|
|
|
|
|
10.6 |
| Vegetable Oil Supply Agreement with Urethane Soy Systems Company, Inc. dated August 2, 1999 and January 10, 2001 |
|
|
| Exhibit 10.6 to the Issuer’s Form S-4 filed with the Commission on December 21, 2001 (File No. 333-75804) |
|
|
|
|
|
|
|
10.7 |
| MnSP Services and Management Agreement dated August 25, 2000 |
|
|
| Exhibit 10.7 to the Issuer’s Form S-4 filed with the Commission on December 21, 2001 (File No. 333-75804) |
|
|
|
|
|
|
|
10.8 |
| Soybean Oil Supply Agreement and Equipment Purchase Agreement with ACH Food Companies, Inc. dated January 15, 2002* |
|
|
| Exhibit 10.8 to the Issuer’s Form S-4 filed with the Commission on May 10, 2002 (File No. 333-75804) |
|
|
|
|
|
|
|
10.9 |
| Railcar Leasing Agreement with General Electric dated May 14, 1996 |
|
|
| Exhibit 10.9 to the Issuer’s Form S-4 filed with the Commission on December 21, 2001 (File No. 333-75804) |
3432
10.10 |
| Track Lease Agreement with DM&E Railroad dated October 15, 1996 |
|
|
| Exhibit 10.10 to the Issuer’s Form S-4 filed with the Commission on December 21, 2001 (File No. 333-75804) |
|
|
|
|
|
|
|
10.11 |
| Land Option Agreement with Howell Farms dated September 8, 1994 and September 13, 2001 |
|
|
| Exhibit 10.11 to the Issuer’s Form S-4 filed with the Commission on December 21, 2001 (File No. 333-75804) |
|
|
|
|
|
|
|
10.12 |
| Railroad Car Lease Agreement with Trinity Industries dated February 12, 2002 |
|
|
| Exhibit 10.15 to the Issuer’s Form S-4 filed with the Commission on March 14, 2002 (File No. 333-75804) |
|
|
|
|
|
|
|
10.13 |
| Stock Purchase Agreement with Urethane Soy Systems, Co. and certain shareholders |
|
|
| Exhibit 10.16 to the Issuer’s Form 8-K filed with the Commission on January 14, 2003 |
|
|
|
|
|
|
|
10.14 |
| Rodney Christianson Employment Agreement dated February 1, 2004 |
|
|
| Exhibit 10.14 to the Issuer’s Form 10-K filed with the Commission on March 30, 2004 |
|
|
|
|
|
|
|
10.15 |
| First Amended and Restated Deferred Compensation Plan for the benefit of Rodney Christianson, dated February 1, 2004 |
|
|
| Exhibit 10.15 to the Issuer’s Form 10-K filed with the Commission on March 30, 2004 |
|
|
|
|
|
|
|
10.16 |
| Thomas Kersting Employment Agreement dated May 20, 1996 |
|
|
| Exhibit 10.18 to the Issuer’s Form 10-K filed with the Commission on March 27, 2003 |
|
|
|
|
|
|
|
10.17 |
| Deferred Compensation Plan for the benefit of Thomas Kersting, dated February 13, 2001 |
|
|
| Exhibit 10.20 to the Issuer’s Form 10-K filed with the Commission on March 27, 2003 |
|
|
|
|
|
|
|
10.18 |
| Polyoil Consulting Services Agreement with Larry Mahlum dated January 1, 2000 |
|
|
| Exhibit 10.21 to the Issuer’s Form 10-K filed with the Commission on March 27, 2003 |
|
|
|
|
|
|
|
10.19 |
| Railcar Leasing Agreements with General Electric Railcar Services Corporation, dated November 10, 2003 and November 25, 2003 |
|
| Exhibit 10.19 to the Issuer’s Form 10-K filed with the Commission on March 30, 2004 | |
|
| |||||
10.20 | Security Agreement with CoBank dated June 17, 2004 | Exhibit 10.1 to the Issuer’s Form 10-Q filed with the Commission on August 16, 2004 | ||||
|
|
|
|
|
|
|
14.1 |
| Code of Ethics |
|
|
|
|
|
|
|
|
|
|
|
21.1 |
| Subsidiaries of the Company |
|
|
|
|
|
|
|
|
|
|
|
24.1 |
| Power of Attorney |
|
|
| See Signature Page to this Annual Report on Form |
|
|
|
|
|
|
|
31.1 |
| Rule 13a-14(a)/15d-14(a) Certifications |
|
|
|
|
|
|
|
|
|
|
|
32.1 |
| Section 1350 Certifications |
|
|
|
|
* The redacted portions of Exhibit B (2 pages) and Exhibit C (6 pages) to Exhibit 10.8 were filed separately with the SEC subject to a request for confidential treatment dated April 25, 2002.
3533
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004, 2003 AND 2002
SOUTH DAKOTA SOYBEAN PROCESSORS, LLC
Table of Contents
Index to Financial Statements
REPORTS OF INDEPENDENT |
| |
|
| |
FINANCIAL STATEMENTS |
| |
| ||
| ||
| ||
| ||
|
REPORT OF INDEPENDENT AUDITOR’S REPORTREGISTERED PUBLIC ACCOUNTING FIRM
The Board of Managers
South Dakota Soybean Processors, LLC
Volga, South Dakota
We have audited the accompanying consolidated balance sheetssheet of South Dakota Soybean Processors, LLC as of December 31, 2004 and the related consolidated statements of operations, changes in members’ equity and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of South Dakota Soybean Processors, LLC as of December 31, 2004, and the results of their operations and their cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.
Gordon, Hughes & Banks, LLP
/s/ Gordon, Hughes & Banks, LLP | |
Greenwood Village, Colorado | |
March 1, 2005 | |
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Managers
South Dakota Soybean Processors, LLC
Volga, South Dakota
We have audited the accompanying consolidated balance sheet of South Dakota Soybean Processors, LLC and Subsidiary as of December 31, 2003 and the related consolidated statements of operations, changes in members’ equity and cash flows for the year then ended. We have also audited the balance sheet of South Dakota Soybean Processors, LLC as of December 31, 2002 and the related statements of operations, changes in members’ equity, and cash flows for the yearsyear ended December 31, 2002 and 2001.2002. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the 2003 financial statements referred to above present fairly, in all material respects, the consolidated financial position of South Dakota Soybean Processors, LLC and Subsidiary as of December 31, 2003, and the results of itstheir operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the 2002 and 2001 financial statements referred to above present fairly, in all material respects, the financial position of South Dakota Soybean Processors, LLC as of December 31, 2002, and the results of its operations and its cash flows for the yearsyear ended December 31, 2002, and 2001, in conformity with accounting principles generally accepted in the United States of America.
/s/ Eide Bailly LLP |
| |
Sioux Falls, South Dakota | ||
January 23, 2004 | ||
F-1F-2
SOUTH DAKOTA SOYBEAN PROCESSORS, LLC
DECEMBER 31, 20032004 AND 20022003
|
| 2003 |
| 2002 |
|
| 2004 |
| 2003 |
| ||||
ASSETS |
|
|
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
CURRENT ASSETS |
|
|
|
|
|
|
|
|
|
| ||||
Cash and cash equivalents |
| $ | 529,697 |
| $ | 11,170 |
|
| $ | 11,423 |
| $ | 529,697 |
|
Trade accounts receivable, less allowance for |
| 23,530,989 |
| 14,695,709 |
| |||||||||
Inventories |
| 10,776,402 |
| 13,113,098 |
| |||||||||
Margin deposits |
| — |
| 927,339 |
| |||||||||
Trade accounts receivable, less allowance for uncollectible accounts (2004 - $28,000; 2003 - $276,878) |
| 17,452,118 |
| 23,530,989 |
| |||||||||
Inventories (Note 2) |
| 8,601,502 |
| 10,776,402 |
| |||||||||
Margin deposits (Note 3) |
| 1,424,422 |
| — |
| |||||||||
Prepaid expenses |
| 516,419 |
| 482,977 |
|
| 538,816 |
| 516,419 |
| ||||
Assets held for sale - Building |
| 2,322,561 |
| 2,307,819 |
| |||||||||
Building exchanged for interest in MnSP |
| — |
| 2,322,561 |
| |||||||||
Total current assets |
| 37,676,068 |
| 31,538,112 |
|
| 28,028,281 |
| 37,676,068 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
PROPERTY AND EQUIPMENT |
| 50,250,024 |
| 49,172,714 |
| |||||||||
PROPERTY AND EQUIPMENT (Note 6) |
| 51,398,225 |
| 50,250,024 |
| |||||||||
Less accumulated depreciation |
| (18,424,405 | ) | (15,411,529 | ) |
| (21,268,006 | ) | (18,424,405 | ) | ||||
|
| 31,825,619 |
| 33,761,185 |
| |||||||||
Total property and equipment |
| 30,130,219 |
| 31,825,619 |
| |||||||||
|
|
|
|
|
|
|
|
|
|
| ||||
OTHER ASSETS |
|
|
|
|
|
|
|
|
|
| ||||
Investments |
| 3,970,102 |
| 4,928,261 |
| |||||||||
Goodwill |
| 7,401,245 |
| — |
| |||||||||
Investments (Note 4) |
| 4,077,625 |
| 3,970,102 |
| |||||||||
Equity investment in unconsolidated affiliate (Note 5) |
| 2,869,366 |
| — |
| |||||||||
Notes receivable - members |
| 481,710 |
| — |
|
| 481,710 |
| 481,710 |
| ||||
Patents |
| 246,599 |
| 36,836 |
| |||||||||
Patents, net (Note 7) |
| 6,900,047 |
| 7,647,844 |
| |||||||||
Other, net |
| 15,721 |
| 20,502 |
|
| 12,640 |
| 15,721 |
| ||||
Total other assets |
| 14,341,388 |
| 12,115,377 |
| |||||||||
|
| 12,115,377 |
| 4,985,599 |
|
|
|
|
|
| ||||
|
|
|
|
|
| |||||||||
|
| $ | 81,617,064 |
| $ | 70,284,896 |
| |||||||
Total assets |
| $ | 72,499,888 |
| $ | 81,617,064 |
| |||||||
See Accompanying Notes to Consolidated Financial StatementsThe accompanying notes are an integral part of these consolidated financial statements
F-2
|
| 2003 |
| 2002 |
| ||
LIABILITIES AND MEMBERS’ EQUITY |
|
|
|
|
| ||
|
|
|
|
|
| ||
CURRENT LIABILITIES |
|
|
|
|
| ||
Excess of outstanding checks over bank balance |
| $ | 2,388,936 |
| $ | 3,603,838 |
|
Current maturities of long-term debt |
| 976,117 |
| 101,472 |
| ||
Accounts payable |
| 1,883,200 |
| 639,587 |
| ||
Accrued commodity purchases |
| 21,492,404 |
| 20,150,385 |
| ||
Accrued expenses |
| 1,385,864 |
| 1,628,022 |
| ||
Accrued interest |
| 50,316 |
| 51,476 |
| ||
Total current liabilities |
| 28,176,837 |
| 26,174,780 |
| ||
|
|
|
|
|
| ||
LONG-TERM LIABILITIES |
|
|
|
|
| ||
Long-term debt, less current maturities |
| 17,543,141 |
| 10,143,459 |
| ||
Deferred compensation |
| 121,301 |
| 91,064 |
| ||
|
| 17,664,442 |
| 10,234,523 |
| ||
|
|
|
|
|
| ||
MINORITY INTEREST IN CONSOLIDATED SUBSIDIARY |
| 1,045,195 |
| — |
| ||
|
|
|
|
|
| ||
COMMITMENTS |
| — |
| — |
| ||
|
|
|
|
|
| ||
MEMBERS’ EQUITY |
|
|
|
|
| ||
Class A Units, no par value |
| 34,730,590 |
| 33,875,593 |
| ||
|
|
|
|
|
| ||
|
| $ | 81,617,064 |
| $ | 70,284,896 |
|
F-3
SOUTH DAKOTA SOYBEAN PROCESSORS, LLC
CONSOLIDATED BALANCE SHEETS (continued)
DECEMBER 31, 2004 AND 2003
|
| 2004 |
| 2003 |
| ||
LIABILITIES AND MEMBERS’ EQUITY |
|
|
|
|
| ||
|
|
|
|
|
| ||
CURRENT LIABILITIES |
|
|
|
|
| ||
Excess of outstanding checks over bank balance |
| $ | 3,411,975 |
| $ | 2,388,936 |
|
Current maturities of long-term debt (Note 9) |
| 1,216,438 |
| 976,117 |
| ||
Accounts payable |
| 928,858 |
| 1,883,200 |
| ||
Accrued commodity purchases |
| 23,640,446 |
| 21,492,404 |
| ||
Accrued expenses |
| 1,646,228 |
| 1,385,864 |
| ||
Accrued interest |
| 49,471 |
| 50,316 |
| ||
Total current liabilities |
| 30,893,416 |
| 28,176,837 |
| ||
|
|
|
|
|
| ||
LONG-TERM LIABILITIES |
|
|
|
|
| ||
Long-term debt, less current maturities (Note 9) |
| 8,986,151 |
| 17,543,141 |
| ||
Deferred compensation (Note 11) |
| 129,345 |
| 121,301 |
| ||
|
| 9,115,496 |
| 17,664,442 |
| ||
|
|
|
|
|
| ||
MINORITY INTEREST IN CONSOLIDATED SUBSIDIARY |
| 368,403 |
| 1,045,195 |
| ||
|
|
|
|
|
| ||
COMMITMENTS (Note 12) |
| — |
| — |
| ||
|
|
|
|
|
| ||
MEMBERS’ EQUITY |
|
|
|
|
| ||
Class A Units, no par value 28,228,500 and 28,258,500 units issued and outstanding at December 31, 2004 and 2003, respectively |
| 32,122,573 |
| 34,730,590 |
| ||
|
|
|
|
|
| ||
Total liabilities and members’ equity |
| $ | 72,499,888 |
| $ | 81,617,064 |
|
The accompanying notes are an integral part of these consolidated financial statements
F-4
SOUTH DAKOTA SOYBEAN PROCESSORS, LLC
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 2002 AND 20012002
|
| 2003 |
| 2002 |
| 2001 |
|
| 2004 |
| 2003 |
| 2002 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
NET REVENUE |
| $ | 207,256,575 |
| $ | 159,497,284 |
| $ | 148,258,146 |
| ||||||||||
NET REVENUES |
| $ | 238,211,056 |
| $ | 207,256,575 |
| $ | 159,497,284 |
| ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
COST OF REVENUE |
|
|
|
|
|
|
| |||||||||||||
COST OF REVENUES |
|
|
|
|
|
|
| |||||||||||||
Cost of product sold |
| 174,234,599 |
| 128,457,162 |
| 121,012,364 |
|
| 200,374,848 |
| 174,234,599 |
| 128,457,162 |
| ||||||
Production |
| 14,046,771 |
| 11,707,538 |
| 10,686,189 |
|
| 14,435,824 |
| 14,046,771 |
| 11,707,538 |
| ||||||
Freight and rail |
| 14,506,644 |
| 12,095,338 |
| 9,366,185 |
|
| 17,606,723 |
| 14,506,644 |
| 12,095,338 |
| ||||||
Brokerage fees |
| 234,346 |
| 323,926 |
| 294,386 |
|
| 286,471 |
| 234,346 |
| 323,926 |
| ||||||
Total cost of revenue |
| 203,022,360 |
| 152,583,964 |
| 141,359,124 |
| |||||||||||||
Total cost of revenues |
| 232,703,866 |
| 203,022,360 |
| 152,583,964 |
| |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
GROSS PROFIT |
| 4,234,215 |
| 6,913,320 |
| 6,899,022 |
|
| 5,507,190 |
| 4,234,215 |
| 6,913,320 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
OPERATING EXPENSES |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Administration |
| 3,639,442 |
| 2,679,633 |
| 2,234,248 |
|
| 4,476,511 |
| 3,639,442 |
| 2,679,633 |
| ||||||
OPERATING PROFIT |
| 594,773 |
| 4,233,687 |
| 4,664,774 |
|
| 1,030,679 |
| 594,773 |
| 4,233,687 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
OTHER INCOME (EXPENSE) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Interest expense |
| (802,178 | ) | (542,220 | ) | (483,223 | ) |
| (1,425,849 | ) | (802,178 | ) | (542,220 | ) | ||||||
Other non-operating income |
| 2,915,160 |
| 3,404,458 |
| 2,093,316 |
|
| 254,061 |
| 2,915,160 |
| 3,404,458 |
| ||||||
Patronage dividend income |
| 97,975 |
| 36,801 |
| 1,460,386 |
|
| 153,961 |
| 97,975 |
| 36,801 |
| ||||||
Total other income (expense) |
| 2,210,957 |
| 2,899,039 |
| 3,070,479 |
|
| (1,017,827 | ) | 2,210,957 |
| 2,899,039 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
NET INCOME BEFORE INCOME TAXES AND MINORITY INTEREST OF SUBSIDIARY |
| 2,805,730 |
| 7,132,726 |
| 7,735,253 |
| |||||||||||||
INCOME BEFORE INCOME TAXES AND MINORITY INTEREST OF SUBSIDIARY |
| 12,852 |
| 2,805,730 |
| 7,132,726 |
| |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
MINORITY INTEREST IN NET LOSS OF SUBSIDIARY |
| 457,620 |
| — |
| — |
|
| 676,792 |
| 457,620 |
| — |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
NET INCOME BEFORE INCOME TAXES |
| 3,263,350 |
| 7,132,726 |
| 7,735,253 |
| |||||||||||||
INCOME BEFORE INCOME TAXES |
| 689,644 |
| 3,263,350 |
| 7,132,726 |
| |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
INCOME TAX EXPENSE (BENEFIT) |
| (131,474 | ) | 520,000 |
| — |
|
| 1,032 |
| (131,474 | ) | 520,000 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
NET INCOME |
| $ | 3,394,824 |
| $ | 6,612,726 |
| $ | 7,735,253 |
|
| $ | 688,612 |
| $ | 3,394,824 |
| $ | 6,612,726 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
BASIC AND DILUTED EARNINGS PER CAPITAL UNIT |
| $ | 0.12 |
| $ | 0.23 |
| $ | 0.27 |
|
| $ | 0.02 |
| $ | 0.12 |
| $ | 0.23 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
WEIGHTED AVERAGE NUMBER OF UNITS OUTSTANDING FOR CALCULATION OF BASIC AND DILUTED EARNINGS PER CAPITAL UNIT |
| 28,258,500 |
| 28,258,500 |
| 28,258,500 |
|
| 28,250,139 |
| 28,258,500 |
| 28,258,500 |
| ||||||
See Accompanying Notes to Consolidated Financial StatementsThe accompanying notes are an integral part of these consolidated financial statements
F-4F-5
SOUTH DAKOTA SOYBEAN PROCESSORS, LLC
CONSOLIDATED STATEMENTSSTATEMENT OF CHANGES IN MEMBERS'MEMBERS’ EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 2002 AND 20012002
|
| Capital Units |
|
| Capital Units |
| ||||||
|
| Shares |
| Amount |
|
| Shares |
| Amount |
| ||
|
|
|
|
|
|
|
|
|
|
| ||
BALANCE, JANUARY 1, 2001 |
| 28,258,500 |
| 30,771,474 |
| |||||||
|
|
|
|
|
| |||||||
Net income |
| — |
| 7,735,253 |
| |||||||
|
|
|
|
|
| |||||||
Proceeds from members’ equity |
| — |
| 4,200 |
| |||||||
|
|
|
|
|
| |||||||
Distributions to members |
| — |
| (5,731,202 | ) | |||||||
|
|
|
|
|
| |||||||
BALANCE, DECEMBER 31, 2001 |
| 28,258,500 |
| 32,779,725 |
| |||||||
BALANCE, JANUARY 1, 2002 |
| 28,258,500 |
| 32,779,725 |
| |||||||
|
|
|
|
|
|
|
|
|
|
| ||
Net income |
| — |
| 6,612,726 |
|
| — |
| 6,612,726 |
| ||
|
|
|
|
|
|
|
|
|
|
| ||
Proceeds from members’ equity |
| — |
| 2,200 |
|
| — |
| 2,200 |
| ||
|
|
|
|
|
|
|
|
|
|
| ||
Distributions to members |
| — |
| (5,519,058 | ) |
| — |
| (5,519,058 | ) | ||
|
|
|
|
|
|
|
|
|
|
| ||
BALANCE, DECEMBER 31, 2002 |
| 28,258,500 |
| 33,875,593 |
|
| 28,258,500 |
| 33,875,593 |
| ||
|
|
|
|
|
|
|
|
|
|
| ||
Net income |
| — |
| 3,394,824 |
|
| — |
| 3,394,824 |
| ||
|
|
|
|
|
|
|
|
|
|
| ||
Distributions to members |
| — |
| (2,539,827 | ) |
| — |
| (2,539,827 | ) | ||
|
|
|
|
|
|
|
|
|
|
| ||
BALANCE, DECEMBER 31, 2003 |
| 28,258,500 |
| $ | 34,730,590 |
|
| 28,258,500 |
| 34,730,590 |
| |
|
|
|
|
| ||||||||
Net income |
| — |
| 688,612 |
| |||||||
|
|
|
|
|
| |||||||
Liquidation of members’ equity |
| (30,000 | ) | (6,000 | ) | |||||||
|
|
|
|
|
| |||||||
Distributions to members |
| — |
| (3,290,629 | ) | |||||||
|
|
|
|
|
| |||||||
BALANCE, DECEMBER 31, 2004 |
| 28,228,500 |
| $ | 32,122,573 |
| ||||||
See Accompanying Notes to Consolidated Financial StatementsThe accompanying notes are an integral part of these consolidated financial statements
F-5
F-6
SOUTH DAKOTA SOYBEAN PROCESSORS, LLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 2002 AND 20012002
|
| 2003 |
| 2002 |
| 2001 |
|
| 2004 |
| 2003 |
| 2002 |
| ||||||
OPERATING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net income |
| $ | 3,394,824 |
| $ | 6,612,726 |
| $ | 7,735,253 |
|
| $ | 688,612 |
| $ | 3,394,824 |
| $ | 6,612,726 |
|
Charges and credits to net income not affecting cash: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Depreciation |
| 2,994,037 |
| 2,746,384 |
| 2,457,804 |
| |||||||||||||
Amortization |
| 18,378 |
| 4,764 |
| 4,059 |
| |||||||||||||
Depreciation and amortization |
| 3,733,449 |
| 3,012,415 |
| 2,751,148 |
| |||||||||||||
Minority interest in net loss of subsidiary |
| (457,620 | ) | — |
| — |
|
| (676,792 | ) | (457,620 | ) | — |
| ||||||
Loss on sale of fixed assets |
| 1,325 |
| 30,288 |
| 118,920 |
|
| 5,136 |
| 1,325 |
| 30,288 |
| ||||||
Loss on equity method investment |
| 54,626 |
| — |
| — |
| |||||||||||||
Non-cash patronage dividends |
| (97,976 | ) | (28,964 | ) | (1,460,386 | ) |
| (107,773 | ) | (97,976 | ) | (28,964 | ) | ||||||
Change in assets and liabilities |
| (5,106,924 | ) | 1,495,889 |
| 603,351 |
| |||||||||||||
Change in current assets and liabilities (Note 13) |
| 8,266,518 |
| (3,892,022 | ) | (530,981 | ) | |||||||||||||
NET CASH FROM OPERATING ACTIVITIES |
| 746,044 |
| 10,861,087 |
| 9,459,001 |
|
| 11,963,776 |
| 1,960,946 |
| 8,834,217 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
INVESTING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Purchase of investments |
| (4,076,686 | ) | (250 | ) | — |
|
| (600,931 | ) | (4,076,686 | ) | (250 | ) | ||||||
Increase in member loans |
| (480,710 | ) | — |
| — |
|
| — |
| (480,710 | ) | — |
| ||||||
Cash assumed with Urethane Soy Systems Co. |
| 38,989 |
| — |
| — |
|
| — |
| 38,989 |
| — |
| ||||||
Retirement of patronage dividends |
| 56,134 |
| 103,262 |
| 809,713 |
|
| — |
| 56,134 |
| 103,262 |
| ||||||
Purchase of assets held for sale - Building |
| (14,742 | ) | (2,307,819 | ) | — |
| |||||||||||||
Purchase of assets held for sale - building |
| — |
| (14,742 | ) | (2,307,819 | ) | |||||||||||||
Patent costs |
| (53,000 | ) | (36,998 | ) | — |
|
| (84,508 | ) | (53,000 | ) | (36,998 | ) | ||||||
Proceeds from sales of property and equipment |
| 41,960 |
| — |
| 122,125 |
|
| 3,500 |
| 41,960 |
| — |
| ||||||
Purchase of property and equipment |
| (1,016,849 | ) | (4,645,020 | ) | (2,718,740 | ) |
| (1,209,852 | ) | (1,016,849 | ) | (4,645,020 | ) | ||||||
NET CASH USED FOR INVESTING ACTIVITIES |
| (5,504,904 | ) | (6,886,825 | ) | (1,786,902 | ) |
| (1,891,791 | ) | (5,504,904 | ) | (6,886,825 | ) | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
FINANCING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Proceeds from members’ equity transactions |
| — |
| 2,200 |
| 4,200 |
| |||||||||||||
Change in excess of outstanding checks over bank balances |
| 1,023,039 |
| (1,214,902 | ) | 2,026,870 |
| |||||||||||||
Payments for liquidation of members’ equity |
| (6,000 | ) | — |
| 2,200 |
| |||||||||||||
Distributions to members |
| (2,539,827 | ) | (5,519,058 | ) | (5,731,202 | ) |
| (3,290,629 | ) | (2,539,827 | ) | (5,519,058 | ) | ||||||
Payments for debt issue costs |
| — |
| (6,500 | ) | — |
|
| — |
| — |
| (6,500 | ) | ||||||
Proceeds from long-term debt |
| 9,489,103 |
| — |
| 1,053,948 |
|
| — |
| 9,489,103 |
| — |
| ||||||
Principal payments on long-term debt |
| (1,671,889 | ) | (454,991 | ) | (991,615 | ) |
| (8,316,669 | ) | (1,671,889 | ) | (454,991 | ) | ||||||
NET CASH FROM (USED FOR) FINANCING ACTIVITIES |
| 5,277,387 |
| (5,978,349 | ) | (5,664,669 | ) | |||||||||||||
NET CASH (USED FOR) FROM FINANCING ACTIVITIES |
| (10,590,259 | ) | 4,062,485 |
| (3,951,479 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
NET CHANGE IN CASH AND CASH EQUIVALENTS |
| 518,527 |
| (2,004,087 | ) | 2,007,430 |
|
| (518,274 | ) | 518,527 |
| (2,004,087 | ) | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR |
| 11,170 |
| 2,015,257 |
| 7,827 |
|
| 529,697 |
| 11,170 |
| 2,015,257 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
CASH AND CASH EQUIVALENTS, END OF YEAR |
| $ | 529,697 |
| $ | 11,170 |
| $ | 2,015,257 |
|
| $ | 11,423 |
| $ | 529,697 |
| $ | 11,170 |
|
|
|
|
|
|
|
|
| |||||||||||||
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION |
|
|
|
|
|
|
| |||||||||||||
Cash paid during the year for: |
|
|
|
|
|
|
| |||||||||||||
|
|
|
|
|
|
|
| |||||||||||||
Interest |
| $ | 887,746 |
| $ | 530,421 |
| $ | 628,636 |
| ||||||||||
|
|
|
|
|
|
|
| |||||||||||||
Income taxes |
| $ | (131,474 | ) | $ | 520,000 |
| $ | — |
| ||||||||||
See Accompanying Notes to Consolidated Financial Statements(continued on next page)
F-6F-7
SOUTH DAKOTA SOYBEAN PROCESSORS, LLC
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002
|
| 2004 |
| 2003 |
| 2002 |
| |||
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION |
|
|
|
|
|
|
| |||
Cash paid during the year for: |
|
|
|
|
|
|
| |||
|
|
|
|
|
|
|
| |||
Interest |
| $ | 1,426,694 |
| 936,902 |
| $ | 628,636 |
| |
|
|
|
|
|
|
|
| |||
Income taxes |
| $ | 2,032 |
| $ | (131,474 | ) | $ | 520,000 |
|
|
|
|
|
|
|
|
| |||
Equity investment acquired from exchange of building |
| $ | 2,322,561 |
| $ | — |
| $ | — |
|
The accompanying notes are an integral part of these consolidated financial statements
F-8
SOUTH DAKOTA SOYBEAN PROCESSORS, LLC
CONSOLIDATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -PRINCIPAL ACTIVITY AND SIGNIFICANT ACCOUNTING POLICIES
Organization
On October 12, 2001, Soybean Processors, LLC (the Company)“Company” or “LLC”) was formed. The initial member of the LLC was the South Dakota Soybean Processors Cooperative (the Cooperative)“Cooperative”). The board of directors of the Cooperative unanimously approved a plan of reorganization related to an exchange whereby the LLC would acquire the assets and liabilities of the Cooperative. The reorganization required the approval of 75% of the members of the Cooperative who voted on the proposal. On June 20, 2002, the members of the South Dakota Soybean Processors Cooperative duly approved the reorganization of the Cooperative into a limited liability company, which became effective on July 1, 2002. Effective July 1, 2002, the LLC acquired the assets and liabilities of the Cooperative. The transaction was an exchange of interests whereby the assets and liabilities of the Cooperative were transferred for capital units of Soybean Processors, LLC. For financial statement purposes, no gain or loss was recorded as a result of the exchange transaction. For income tax purposes, the difference between the tax basis and the fair market value of the assets resulted in an income tax liability discussed in Note 10.
As a result of the exchange, the Cooperative was dissolved on July 1, 2002, and the LLC’s capital units were distributed to the members of the Cooperative at a rate of one capital unit of the LLC for each share of equity stock of the Cooperative. In connection with the reorganization, the LLC changed its name to South Dakota Soybean Processors, LLC.
A minimum of 2,500 capital units is required for an ownership ofinterest in the LLC. Such units will beare subject to certain transfer restrictions. The LLC will also retainretains the right to redeem the units at the greater of $.20 per unit or the original purchase price less cumulative distributions through the date of redemption in the event a member attempts to dispose of the units in a manner not in conformity with the Operating Agreement, if a member becomes a holder of less than 2,500 units, or if a member becomes an owner (directly or indirectly) of more than 1.5% of the issued and outstanding capital units or becomes a bankrupt member.units. The Operating Agreement of the LLC also includes provisions whereby cash equal to a minimum of 30% of available net income will be distributed to unit holders subject to certain limitations. These limitations include a minimum net income of $500,000, restrictions imposed by debt and credit instruments or as restricted by law in the event of insolvency.
In connection with the reorganization, the delivery of soybeans under the previous member delivery agreements iswas no longer required as an obligation of membership. Earnings, losses and cash distributions are allocated to members based on their percentage of ownership in the LLC.
The companyCompany owns approximately 58% of Urethane Soy Systems Company (USSC)(“USSC”). USSC is the manufacturer and patent holder of SoyOyl®Soyol®, a polyol made from soybean oil. A minority interest is presented in the consolidated balance sheet that represents the approximate 42% ownership of other investors in the 96,025 outstanding common shares of USSC.
South Dakota Soybean Processors is operated for the purpose of manufacturing products from soybeans, such as soybean oil, meal, and hulls.
Basis of presentation and principles of consolidation
As a result of the reorganization mentioned above, the financial statements of the prior periods have been restated to reflect the comparative basis of the Company versus the Cooperative. The consolidated financial statements include the accounts of the Company and its majority-owned subsidiary. The effects of all significant intercompany accounts and transactions have been eliminated.
(continued on next page)
F-7
F-9
SOUTH DAKOTA SOYBEAN PROCESSORS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Cash and cash equivalents
The Company considers all highly liquid debt instruments with maturity of three months or less at the time of acquisition to be cash equivalents.
Accounts receivable
Accounts receivable are carried at cost. Accounts receivable are considered past due when payments are not received within thirty days. Generally, these accounts receivable represent amounts due for sale of soybean meal, oil, hulls and refined oil.
The carrying amount of trade receivables is reduced by a valuation allowance that reflects management’s best estimate of the amounts that will not be collected. Management reviews all receivable balances that exceed 90 days from the invoice date and, based on an assessment of current creditworthiness, estimates the portion, if any, of the balance that will not be collected.
Inventories
Finished goods (soybean meal, oil, refined oil, and hulls) and raw materials (soybeans) are valued at estimated market value, which approximates net realizable value. This accounting policy is in accordance with the guidelines described in AICPA Statement of Position No. 85-3, “Accounting by Agricultural Producers and Agricultural Cooperatives.”Supplies and other inventories are stated at the lower of cost, determined by the first-in, first-out method, or market.
Assets held for sale
Assets held for sale are carried at cost.net book value.
Investments
Investments in cooperatives are carried at cost plus the amount of patronage earnings allocated or estimates of interim allocations to the Company, less any cash distributions received.
The investmentinvestments in Cenex Harvest States (CHS) is carried at an amount equal to the patronage allocations received, and estimated to be received, from that cooperative organization. The investment in CoBank is carried at an amount equal to theinclude actual patronage allocations received.based upon written qualified notices of allocation received from CHS and CoBank. Patronage allocations represent the Company’s proportionate share of the patronage earnings of CHS and CoBank.
The investments include actual patronage allocations based upon written qualified notices of allocation received from CHS and CoBank and estimated patronage allocations expected to be received. The Company recognizes patronage revenue when it is probable that an allocation will be made and when the amount can be reasonably estimated. The need to estimate patronage allocations arises because of differences between the Company’s year-end and the receipt of the actual allocation notification from CHS.
Since the companyCompany is no longer a cooperative as of July 1, 2002, it will no longer receive patronage allocations.allocations from CHS.
(continued on next page)The Company accounts for its 7% investment in Minnesota Soybean Processors using the equity method due to the related nature of operations and the Company’s ability to influence management decisions of MnSP. Under the equity method, the initial investment is recorded at cost and adjusted annually to recognize the Company’s share of earnings and losses of the entity.
F-8
Property and equipment
Property and equipment is stated at cost. Expenditures for renewals and improvements that significantly add to the productive capacity or extend the useful life of an asset are capitalized. Expenditures for maintenance and repairs are charged to expense currently.when incurred. When depreciable properties are sold or retired, the cost and accumulated depreciation are eliminated from the accounts and the resultant gain or loss is reflected in income.
The Company reviews its property and equipment for impairment whenever events indicate that the carrying amount of the asset may not be recoverable. An impairment loss is recorded when the sum of the future cash flows is less than the carrying amount of the asset. The amount of the loss is determined by comparing the fair market value ofexpected discounted cash flows from the asset to the carrying amount of the asset.
(continued on next page)
F-10
SOUTH DAKOTA SOYBEAN PROCESSORS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Depreciation is provided for over the estimated useful lives of the individual assets using the straight-line method. The range of the estimated useful lives used in the computation of depreciation areis as follows:
Buildings and improvements |
| 10-39 years |
|
Equipment and furnishings |
| 3-15 years |
|
Patents
The Company’s patents are intangible assets that are not considered to have an indefinite life and, under the rules of SFAS No. 142, are to be amortized over their estimated useful life. The patents are being amortized using the straight-line method over a period of 16 to 20 years, which is the shorter of the remaining estimated economic life of the patents acquired or 20 years from the original file date.
Other assets
Other assets are carried at cost. Loan fees are being amortized on an interest method of accounting over the term of the related loans.
Use of estimates
The preparation of financial statements in conformity with accounting principles generally accepted accounting principlesin the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Revenue Recognition
Revenue is recognized afterwhen the related products are shipped, andwhich is when title hasis transferred to the customer. Revenues are presented net of discounts and sales allowances.
Freight
The Company presents all amounts billed to the customer for freight as a component of net revenue. Costs incurred for freight are reported as a component of cost of revenue.
Advertising costs
Advertising and promotion costs are expensed as incurred. The Company incurred $17,614, $7,885, and $10,275 of advertising costs in the years ended December 31, 2004, 2003, and 2002, respectively.
Environmental remediation
It is management’s opinion that the amount of any potential environmental remediation costs will not be material to the Company’s financial condition, results of operations, or cash flow;flows; therefore, no accrual has been recorded.
(continued on next page)
F-9
Recently issued accounting pronouncements
In May 2003 the FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity”, which establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in certain circumstances). Many of those instruments were previously classified as equity. SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003, except for mandatory redeemable financial instruments of nonpublic entities that are subject to the provisions for the first fiscal period beginning after December 15, 2003. The Statement is to be implemented by reporting the cumulative effect of a change in an accounting principle for financial instruments created before the issuance date of the Statement and still existing at the beginning of the interim period of adoption. The Company believes that the adoption of this standard will not have a material effect on the consolidated financial statements.
Accounting for derivative instruments and hedging activities
All of the Company’s derivatives are designated as non-hedge derivatives. The futures and options contracts used by the Company are discussed below. Although the contracts aremay be effective economic hedges of specified risks, they are not designated as, andnor accounted for, as hedging instruments.
The Company, as part of its trading activity, uses futures and option contracts offered through regulated commodity exchanges to reduce risk. The Company is exposed to risk of loss in the market value of inventories. To reduce that risk, the Company generally takes opposite and offsetting positions using futurefutures contracts or options.
(continued on next page)
F-11
SOUTH DAKOTA SOYBEAN PROCESSORS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Unrealized gains and losses on futures and options contracts used to hedge soybean, oil and meal inventories are recognized as a component of net proceeds for financial reporting. Inventories are recorded at estimated market value, which approximates net realizable value, so that gains and losses on the derivative contracts are offset by gains and losses on inventories and reflected in earnings currently.current earnings.
Earnings per sharecapital unit
The ownership structure of the Company is made up of Class A capital units. Earnings per capital unit are calculated based on the weighted average number of Class A capital units held.outstanding. On June 17, 2003, the Board of Managers declared a 2-for-1 split of Class A capital units effective immediately. Prior to this transaction, there were 14,129,250 Class A capital units outstanding. The 2-for-1 stock split is retroactively reflected in the calculation of earnings per capital unit.
For purposes of calculating basic earnings per capital unit, capital units issued by the Company are considered outstanding on the effective date of issuance.
The Company has no other capital units or other member equity instruments that are dilutive for purposes of calculating earnings per capital unit.
Reclassifications
Reclassifications have been made to the December 31, 2003 and December 31, 2002 and December 31, 2001 financial information to make them conform to the current period presentation. The reclassification hadThese reclassifications have no effect on previously reported net income or members’ equity.
Recent accounting pronouncements
In November 2004, the FASB issued FASB Statement No. 151, which revised ARB No.43, relating to inventory costs. This revision is to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs and wasted material (spoilage). This Statement requires that these items be recognized as a current period charge regardless of whether they meet the criterion specified in ARB 43. In addition, this Statement requires the allocation of fixed production overheads to the costs of conversion be based on normal capacity of the production facilities. This Statement is effective for financial statements for fiscal years beginning after June 15, 2005. Earlier application is permitted for inventory costs incurred during fiscal years beginning after the date of this Statement is issued. Management believes this Statement will have no impact on the financial statements of the Company once adopted.
In December 2004, the FASB issued FASB Statement No. 152, which amends FASB Statement No. 66, Accounting for Sales of Real Estate, to reference the financial accounting and reporting guidance for real estate time-sharing transactions that is provided in AICPA Statement of Position (SOP) 04-2, Accounting for Real Estate Time-Sharing Transactions. This Statement also amends FASB Statement No. 67, Accounting for Costs and Initial Rental Operations of Real Estate Projects, to state that the guidance for (a) incidental operations and (b) costs incurred to sell real estate projects does not apply to real-estate time-sharing transactions. The accounting for those operations and costs is subject to the guidance in SOP 04-2. This Statement is effective for financial statements for fiscal years beginning after June 15, 2005. Management believes this Statement will have no impact on the financial statements of the Company once adopted.
(continued on next page)
F-10
F-12
SOUTH DAKOTA SOYBEAN PROCESSORS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In December 2004, the FASB issued FASB Statement No. 153. This Statement addresses the measurement of exchanges of nonmonetary assets. The guidance in APB Opinion No. 29, Accounting for Nonmonetary Transactions, is based on the principle that exchanges of nonmonetary assets should be measured based on the fair value of the assets exchanged. The guidance in that Opinion, however, included certain exceptions to that principle. This Statement amends Opinion 29 to eliminate the exception for nonmonetary exchanges of similar productive assets and replaces it with a general exception for exchanges of nonmonetary assets that do not have commercial substance. A nonmonetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. This Statement is effective for financial statements for fiscal years beginning after June 15, 2005. Earlier application is permitted for nonmonetary asset exchanges incurred during fiscal years beginning after the date of this Statement is issued. Management believes this Statement will have no impact on the financial statements of the Company once adopted.
In December 2004, the FASB issued a revision to FASB Statement No. 123, Accounting for Stock Based Compensation. This Statement supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees, and its related implementation guidance. This Statement establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services. It also addresses transactions in which an entity incurs liabilities in exchange for goods or services that are based on the fair value of the entity’s equity instruments or that may be settled by the issuance of those equity instruments. This Statement focuses primarily on accounting for transactions in which an entity obtains employee services in share-based payment transactions. This Statement does not change the accounting guidance for share-based payment transactions with parties other than employees provided in Statement 123 as originally issued and EITF Issue No. 96-18, “Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services.” This Statement does not address the accounting for employee share ownership plans, which are subject to AICPA Statement of Position 93-6, Employers’ Accounting for Employee Stock Ownership Plans.
A nonpublic entity will measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of those instruments, except in certain circumstances.
A public entity will initially measure the cost of employee services received in exchange for an award of liability instruments based on its current fair value; the fair value of that award will be re-measured subsequently at each reporting date through the settlement date. Changes in fair value during the requisite service period will be recognized as compensation cost over that period. A nonpublic entity may elect to measure its liability awards at their intrinsic value through the date of settlement.
The grant-date fair value of employee share options and similar instruments will be estimated using the option-pricing models adjusted for the unique characteristics of those instruments (unless observable market prices for the same or similar instruments are available).
Excess tax benefits, as defined by this Statement, will be recognized as an addition to paid-in-capital. Cash retained as a result of those excess tax benefits will be presented in the statement of cash flows as financing cash inflows. The write-off of deferred tax assets relating to unrealized tax benefits associated with recognized compensation cost will be recognized as income tax expense unless there are excess tax benefits from previous awards remaining in paid-in capital to which it can be offset.
The notes to the financial statements of both public and nonpublic entities will disclose information to assist users of financial information to understand the nature of share-based payment transactions and the effects of those transactions on the financial statements.
(continued on next page)
F-13
SOUTH DAKOTA SOYBEAN PROCESSORS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The effective date for public entities that do not file as small business issuers will be as of the beginning of the first interim or annual reporting period that begins after June 15, 2005. For public entities that file as small business issuers and nonpublic entities the effective date will be as of the beginning of the first interim or annual reporting period that begins after December 15, 2005. Management intends to comply with this Statement at the scheduled effective date for the relevant financial statements of the Company.
NOTE 2 -INVENTORIES
|
| 2003 |
| 2002 |
|
| 2004 |
| 2003 |
| ||||
Finished goods |
|
|
|
|
|
|
|
|
|
| ||||
Soy processing |
| $ | (447,404 | ) | $ | 9,550,460 |
|
| $ | 5,913,666 |
| $ | (447,404 | ) |
Refined Oil |
| 313,815 |
| 496,198 |
| |||||||||
Refined oil |
| 602,466 |
| 313,815 |
| |||||||||
Other |
| 34,536 |
| 26,609 |
|
| 46,762 |
| 34,536 |
| ||||
Total |
| (99,053 | ) | 10,073,267 |
| |||||||||
Total finished goods |
| 6,562,894 |
| (99,053 | ) | |||||||||
|
|
|
|
|
|
|
|
|
|
| ||||
Raw materials |
|
|
|
|
|
|
|
|
|
| ||||
Soy Processing |
| 10,696,391 |
| 2,935,400 |
| |||||||||
Refined Oil |
| 46,663 |
| 45,262 |
| |||||||||
Soy processing |
| 1,950,568 |
| 10,696,391 |
| |||||||||
Refined oil |
| 18,909 |
| 46,663 |
| |||||||||
Other |
| 78,465 |
| 9,424 |
|
| 17,167 |
| 78,465 |
| ||||
Total |
| 10,821,519 |
| 2,990,086 |
| |||||||||
Total raw materials |
| 1,986,644 |
| 10,821,519 |
| |||||||||
|
|
|
|
|
|
|
|
|
|
| ||||
Supplies & Miscellaneous |
| 53,936 |
| 49,745 |
| |||||||||
Supplies & miscellaneous |
| 51,964 |
| 53,936 |
| |||||||||
|
|
|
|
|
|
|
|
|
|
| ||||
Totals |
| $ | 10,776,402 |
| $ | 13,113,098 |
|
| $ | 8,601,502 |
| $ | 10,776,402 |
|
Finished goods and raw materials are valued at estimated market value, which approximates net realizable value. In addition, futures and option contracts are marked to market through cost of revenues, with unrealized gains and losses recorded in the above inventory amounts. This market adjustment caused the soy processing finished goods to have a credit balance as of December 31, 2003. Supplies and other inventories are stated at the lower of cost, determined by the first-in, first-out method, or market.
NOTE 3 - MARGIN DEPOSITS
The Company maintains deposits with a brokerage firm. The deposits are used for risk management.
The Company uses futures and option contracts to manage the risk of commodity price volatility of soybeans, crude soybean oil and soybean meal. Consistent with its inventory accounting policy, these contracts are recorded at market value.
At December 31, 2003,2004, the Company had contracts maturing through December 2004.
NOTE 4 - ASSETS HELD FOR SALE
The Company has entered into a letter of understanding with Minnesota Soybean Processors (MnSP) regarding the terms and conditions of the Company’s investment in a soybean oil storage facility located in Brewster, MN. The Company will own and operate the facility until MnSP commences its planned principal operations. Upon commencement of MnSP’s operations, the Company will transfer the facility to MnSP for consideration equal to the original cost of construction plus the cost of any improvements to the facility.2005.
(continued on next page)
F-11
F-14
SOUTH DAKOTA SOYBEAN PROCESSORS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 - INVESTMENTS
|
| 2004 |
| 2003 |
| ||
Investments in associated companies: |
|
|
|
|
| ||
Cenex Harvest States |
| $ | 3,516,592 |
| $ | 3,516,592 |
|
CoBank |
| 561,033 |
| 453,260 |
| ||
|
| 4,077,625 |
| 3,969,852 |
| ||
Other |
| — |
| 250 |
| ||
|
|
|
|
|
| ||
Totals |
| $ | 4,077,625 |
| $ | 3,970,102 |
|
NOTE 5 - EQUITY INVESTMENT IN MINNESOTA SOYBEAN PROCESSORS
|
| 2004 |
| ||||||||||
|
| Acquired |
| Distributions |
| Net Income |
| Asset |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Minnesota Soybean Processors, 6.95% ownership, at equity |
| $ | 2,923,992 |
| $ | — |
| $ | (54,626 | ) | $ | 2,869,366 |
|
In August 2004, the Company exchanged a storage facility with a net book value of $2,322,561 for 1,400,400 Class A shares in Minnesota Soybean Processors (MnSP), a Minnesota cooperative association. The shares approximate 6.95% of MnSP’s outstanding equity. The Company is accounting for the investment on the equity method due to the related nature of operations and the fact that through the management services provided, the Company exercises significant influence. In connection with the exchange and in recording its respective share of the equity of MnSP, the Company recognized a loss of $54,626 which is included with other non-operating income (expense).
The Company also subscribed for 287,500 Class B shares in MnSP. The shares are 8%, Non-Cumulative Convertible Class B Preferred Stock sold at $2.00 per share for a total purchase price of $575,000.
Summarized financial information of MnSP as of December 31, 2004 and for the year then ended is as follows:
|
| (Unaudited) |
| |
Revenues |
| $ | 264,129,424 |
|
Expenses |
| 268,405,313 |
| |
Other income (expense) |
| (198,636 | ) | |
Net income (loss) |
| $ | (4,474,525 | ) |
|
|
|
| |
Assets |
| $ | 82,962,604 |
|
Liabilities |
| 47,064,524 |
| |
Equity |
| 35,898,080 |
| |
(continued on next page)
F-15
SOUTH DAKOTA SOYBEAN PROCESSORS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - PROPERTY AND EQUIPMENT
|
| 2003 |
|
|
| ||||||||
|
| Cost |
| Accumulated |
| Net |
| 2002 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Land |
| $ | 237,643 |
| $ | — |
| $ | 237,643 |
| $ | 237,643 |
|
Land improvements |
| 18,572 |
| 17,711 |
| 861 |
| — |
| ||||
Buildings and improvements |
| 14,290,569 |
| 2,556,169 |
| 11,734,400 |
| 12,136,431 |
| ||||
Machinery and equipment |
| 34,325,434 |
| 15,069,361 |
| 19,256,073 |
| 21,116,733 |
| ||||
Company vehicles |
| 111,217 |
| 101,905 |
| 9,312 |
| 58,620 |
| ||||
Furniture and fixtures |
| 814,180 |
| 679,259 |
| 134,921 |
| 152,861 |
| ||||
Construction in progress |
| 452,409 |
| — |
| 452,409 |
| 58,897 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Totals |
| $ | 50,250,024 |
| $ | 18,424,405 |
| $ | 31,825,619 |
| $ | 33,761,185 |
|
NOTE 6 - GOODWILLPROPERTY AND EQUIPMENT
|
| 2004 |
|
|
| ||||||||
|
| Cost |
| Accumulated |
| Net |
| 2003 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Land |
| $ | 237,643 |
| $ | — |
| $ | 237,643 |
| $ | 237,643 |
|
Land improvements |
| 18,572 |
| 17,782 |
| 790 |
| 861 |
| ||||
Buildings and improvements |
| 14,290,569 |
| 2,958,748 |
| 11,331,821 |
| 11,734,400 |
| ||||
Machinery and equipment |
| 34,684,574 |
| 17,478,356 |
| 17,206,218 |
| 19,256,073 |
| ||||
Company vehicles |
| 165,840 |
| 90,628 |
| 75,212 |
| 9,312 |
| ||||
Furniture and fixtures |
| 841,099 |
| 722,492 |
| 118,607 |
| 134,921 |
| ||||
Construction in progress |
| 1,159,928 |
| — |
| 1,159,928 |
| 452,409 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Totals |
| $ | 51,398,225 |
| $ | 21,268,006 |
| $ | 30,130,219 |
| $ | 31,825,619 |
|
NOTE 7 - OTHER INTANGIBLE ASSETS
On January 1, 2003, the Company acquired an additional 54% interest in the outstanding common stock of USSC to bring its total ownership interest to approximately 58%. The results of USSC’s operations have been includedconsolidated in the Company’s financial statements since that date. The Company believes that the acquisition of a controlling interest in USSC will allow themthe Company to more effectivelydevelop and market and expand applications for USSC’ssoy-based polyurethane products.
The aggregate purchase price for the 54% interest was $8,576,686. The Company had previously acquired a 4% interest for $1,000,000. In preparing consolidated financial statements, the Company assigned the total consideration paid for the USSC stock to USSC’s assets and liabilities. This allocation resulted in an assignment of $7,401,245 to goodwill.patents. None of the goodwillthese patent costs recognized for financial reporting purposes is expected to be deductible for tax purposes. The patents are being amortized using the straight-line method over a period of 16 to 20 years, which is the shorter of the remaining estimated economic life of the patents acquired or 20 years from the original file date.
The following table summaries the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition.
Current assets |
| $ | 85,742 |
|
| $ | 85,742 |
|
Property and equipment |
| 255,894 |
|
| 255,894 |
| ||
Goodwill |
| 7,401,245 |
| |||||
Patents |
| 7,401,245 |
| |||||
Total assets acquired |
| 7,742,881 |
|
| 7,742,881 |
| ||
|
|
|
|
|
|
| ||
Current liabilities |
| 1,054,906 |
|
| 1,054,906 |
| ||
Long-term debt |
| 155,928 |
|
| 155,928 |
| ||
Total liabilities assumed |
| 1,210,834 |
|
| 1,210,834 |
| ||
Net assets acquired |
| $ | 6,532,047 |
|
| $ | 6,532,047 |
|
The Company has a contractual obligation to pay former USSC shareholders $4,050,000. The Company paid an installmentTwo remaining installments of $1,377,000$891,000 are due on October 31, 2003. Three additional annual installments of $891,000 will be payable on each October 31 thereafter. The payments are made without interest. It was not considered necessary to impute interest on the payments due to the immateriality of the imputed interest amounts.2005 and 2006 (see Note 9).
(continued on next page)
F-12
F-16
The Company made payments of $1,125,000 in January 2003 and $375,000 in April, July, and October 2003, to USSC in connection with the issuance of new common shares. Future commitments are two additional quarterly installment of $375,000 and five quarterly payments of $300,000 beginning July 1, 2004. This future commitment was taken into consideration in determining the total purchase price for the additional 54% interest in USSC.SOUTH DAKOTA SOYBEAN PROCESSORS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table provides information regarding the Company’s other intangible assets as of December 31, 20032004 and 2002:2003:
Intangible Assets |
| Life |
| Gross |
| Accumulated |
| Net |
| |||
|
|
|
|
|
|
|
|
|
| |||
As of December 31, 2003 |
|
|
|
|
|
|
|
|
| |||
Loan Origination Costs |
| 10 Yrs. |
| $ | 20,502 |
| $ | (4,781 | ) | $ | 15,721 |
|
Patents |
| 20 Yrs. |
| 260,149 |
| (13,550 | ) | 246,599 |
| |||
|
|
|
| $ | 280,651 |
| $ | (18,331 | ) | $ | 262,320 |
|
|
|
|
|
|
|
|
|
|
| |||
As of December 31, 2002 |
|
|
|
|
|
|
|
|
| |||
Loan Origination Costs |
| 10 Yrs. |
| $ | 23,291 |
| $ | (2,789 | ) | $ | 20,502 |
|
NOTE 7 - INVESTMENTS
|
| 2003 |
| 2002 |
| ||
Investments in associated companies: |
|
|
|
|
| ||
Cenex Harvest States |
| $ | 3,516,592 |
| $ | 3,543,333 |
|
CoBank |
| 453,260 |
| 384,678 |
| ||
|
| 3,969,852 |
| 3,928,011 |
| ||
Urethane Soy Systems Company, Inc. |
| — |
| 1,000,000 |
| ||
Minnesota Soybean Processors |
| 250 |
| 250 |
| ||
|
|
|
|
|
| ||
Totals |
| $ | 3,970,102 |
| $ | 4,928,261 |
|
Intangible Assets |
| Life |
| Cost |
| Accumulated |
| Net |
| |||
|
|
|
|
|
|
|
|
|
| |||
As of December 31, 2004: |
|
|
|
|
|
|
|
|
| |||
Loan Origination Costs |
| 10 Yrs. |
| $ | 20,502 |
| $ | (7,862 | ) | $ | 12,640 |
|
Patents |
| 16 - 20 Yrs. |
| 7,745,947 |
| (845,900 | ) | 6,900,047 |
| |||
|
|
|
| $ | 7,766,449 |
| $ | (853,762 | ) | $ | 6,912,687 |
|
|
|
|
|
|
|
|
|
|
| |||
As of December 31, 2003: |
|
|
|
|
|
|
|
|
| |||
Loan Origination Costs |
| 10 Yrs. |
| $ | 20,502 |
| $ | (4,781 | ) | $ | 15,721 |
|
Patents |
| 16 - 20 Yrs. |
| 7,661,394 |
| (13,550 | ) | 7,647,844 |
| |||
|
|
|
| $ | 7,681,896 |
| $ | (18,331 | ) | $ | 7,663,565 |
|
NOTE 8 - NOTES PAYABLE – SEASONAL LOAN
The Company has entered into a revolving credit agreement with CoBank, which expires April 1, 2005. The purpose of the credit agreement is to finance the inventory and accounts receivable of the Company. The Company may borrow up to $6,000,000 between June 1 and September 30 and up to $10,000,000 between October 1 and May 31.$15,200,000. Interest isaccrues at a variable rate (3.47%(4.85% at December 31, 2003)2004). There were no advances outstanding at December 31, 20032004 and 2002.2003.
Advances on the revolving credit agreement are limited based upon inventory and accounts receivable, net of soybean accounts payable.
(continued on next page)
F-13
F-17
SOUTH DAKOTA SOYBEAN PROCESSORS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 - LONG-TERM DEBT
|
| 2003 |
| 2002 |
| ||
|
|
|
|
|
| ||
Revolving term loan from CoBank, interest at variable rates (3.47% at December 31, 2003), secured by substantially all property and equipment. Loan matures 3/20/2011. |
| 15,281,832 |
| 9,874,620 |
| ||
|
|
|
|
|
| ||
Note payable to former USSC shareholders, due in annual principal payments of $891,000, interest at 0%, secured by USSC stock. Note matures on 10/31/2006. |
| 2,673,000 |
| — |
| ||
|
|
|
|
|
| ||
Note payable to Brookings County Railroad Authority, due in semi-annual principal and interest installments of $36,885 at 5% secured by railroad track assets. Note matures 9/1/2007. |
| 264,462 |
| 322,812 |
| ||
|
|
|
|
|
| ||
Note payable to Richard Kipphart, issued February 13, 2002, with quarterly interest payments at 15% which began on June 30, 2002, and are paid in quarterly installments thereafter. No prepayment of principal is allowed prior to maturity. Note matures 2/13/2005. |
| 250,000 |
| — |
| ||
|
|
|
|
|
| ||
Note payable to various companies at rates ranging from 0% to 7.5%. Notes mature on or before 4/15/2005. |
| 49,964 |
| 8,754 |
| ||
|
|
|
|
|
| ||
Contract payable to City of Volga, due in monthly installments of $3,229 at 0%. Contract matures 12/31/2003. |
| — |
| 38,745 |
| ||
|
|
|
|
|
| ||
|
| 18,519,258 |
| 10,244,931 |
| ||
Less current maturities |
| (976,117 | ) | (101,472 | ) | ||
|
|
|
|
|
| ||
Totals |
| $ | 17,543,141 |
| $ | 10,143,459 |
|
|
| 2004 |
| 2003 |
| ||
|
|
|
|
|
| ||
Revolving term loan from CoBank, interest at variable rates (4.85% and 3.47% at December 31, 2004 and 2003, respectively), secured by substantially all property and equipment. Loan matures March 20, 2011. |
| 7,940,777 |
| 15,281,832 |
| ||
|
|
|
|
|
| ||
Note payable to former USSC shareholders, due in annual principal payments of $891,000, interest at 0%, secured by USSC stock. Note matures on October 31, 2006. |
| 1,782,000 |
| 2,673,000 |
| ||
|
|
|
|
|
| ||
Note payable to Brookings County Railroad Authority, due in semi-annual principal and interest installments of $36,885 at 5%, secured by railroad track assets. Note matures September 1, 2007. |
| 203,158 |
| 264,462 |
| ||
|
|
|
|
|
| ||
Note payable to Richard Kipphart, issued February 13, 2002, with quarterly interest payments at 15% which began on June 30, 2002, and are paid in quarterly installments thereafter. No prepayment of principal is allowed prior to maturity. Note matures February 13, 2005. |
| 250,000 |
| 250,000 |
| ||
|
|
|
|
|
| ||
Note payable to various companies at rates ranging from 0% to 7.5%. Notes mature on or before March 16, 2009. |
| 26,654 |
| 49,964 |
| ||
|
| 10,202,589 |
| 18,519,258 |
| ||
Less current maturities |
| (1,216,438 | ) | (976,117 | ) | ||
|
|
|
|
|
| ||
Totals |
| $ | 8,986,151 |
| $ | 17,543,141 |
|
The Company entered into an agreement as of February 26, 2002June 17, 2004 with CoBank to amend and restate its Master Loan Agreement (MLA)., which includes both the revolving term loan and the seasonal loan discussed in Note 8. Under the terms and conditions of the MLA, CoBank agreesagreed to make loans to the Company for up to $18,200,000 from August 1, 2002 until April 30, 2003 and up to $21,000,000 from May 1, 2003 to September 19, 2003. Beginning September 2003, the$18,400,000. The available commitment decreases in scheduled periodic increments of $1,300,000 through March 2011.$1,300,000. The available commitment as of December 31, 2004, was $17,100,000.
The MLA contains financial covenants relatedAfter the amendment to the maintenance ofloan agreement, the Company negotiated the minimum working capital level for future periods to be $6.0 million. In addition, its lender deferred the next two scheduled deductions to the available credit. The $1,300,000 reductions to the available credit will now begin in September 2005. As of December 31, 2004 the Company has working capital of greater than $6.0 million and achieving debt service quotients among affirmative and negative covenants.is in compliance with its working capital covenant. Waivers for noncompliance were obtained at various interim periods during the year ended December 31, 2004.
(continued on next page)
F-14
F-18
SOUTH DAKOTA SOYBEAN PROCESSORS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
It is estimated that the minimum principal payments on long-term debt obligations will be as follows:
For the years ending December 31: |
|
|
|
|
|
| ||
2004 |
| $ | 976,117 |
| ||||
2005 |
| 2,265,682 |
|
| $ | 1,216,438 |
| |
2006 |
| 2,264,407 |
|
| 963,125 |
| ||
2007 |
| 2,267,668 |
|
| 75,886 |
| ||
2008 |
| 2,271,083 |
|
| 5,176 |
| ||
2009 |
| 1,241,964 |
| |||||
Thereafter |
| 8,474,301 |
|
| 6,700,000 |
| ||
|
|
|
|
|
|
| ||
Total |
| $ | 18,519,258 |
|
| $ | 10,202,589 |
|
NOTE 10 - INCOME TAXES
The Company is taxed as a limited liability company under the Internal Revenue Code. The income of the companyCompany flows through to the members to be taxed at the individual level rather than the corporate level. Accordingly, the Company will have no income tax liability.
On June 20, 2002, the members approved a plan of reorganization to convert the Cooperative’s structure from an exempt organization to a limited liability company. To the extent that the fair market value of the Cooperative’s net assets exceeded their adjusted tax basis, the Cooperative incurred a federal income tax liability. The excess of the fair market value of the Cooperative’s net assets over their adjusted tax basis was approximately $1,530,000. The Company’s effective tax rate iswas 34%. prior to the reorganization. The State of South Dakota does not have a corporate income tax. This liability is estimated
The provision (benefit) for income taxes were as follows:
|
| 2003 |
| 2002 |
| 2001 |
| |||
|
|
|
|
|
|
|
| |||
Federal income tax expense at statutory rates |
| $ | (131,474 | ) | $ | 520,000 |
| $ | — |
|
|
| 2004 |
| 2003 |
| 2002 |
| |||
|
|
|
|
|
|
|
| |||
Federal income tax expense (benefit) at statutory rates |
| $ | 1,032 |
| $ | (131,474 | ) | $ | 520,000 |
|
A reconciliation of income tax at the statutory rate to the Company’s effective rate is as follows:
|
| 2002 |
| 2001 |
|
|
|
|
|
|
|
Computed at the expected statutory rate |
| 34.0 | % | 34.0 | % |
Patronage exclusion (through June 30, 2002) |
| (34.0 | )% | (34.0 | )% |
|
|
|
|
|
|
Income tax expense - effective rate |
| 0.0 | % | 0.0 | % |
2002 | |||
Computed at the expected statutory rate | 34.0 | % | |
Patronage exclusion (through June 30, 2002) | (34.0 | )% | |
Income tax expense - effective rate | 0.0 | % |
The net book value of the Company’s assets exceeds the tax basis of those assets by approximately $7,450,000$12,330,000 at December 31, 2003.2004.
(continued on next page)
F-15
F-19
SOUTH DAKOTA SOYBEAN PROCESSORS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11 - EMPLOYEE BENEFIT PLANS
The Company maintains a 401(k) plan for employees who meet the eligibility requirements set forth in the plan documents. The Company matches a percentage of employees’ contributed earnings. The amounts charged to expense under this plan were approximately $58,000, $63,000, $62,000, and $65,000$62,000 for the years ended December 31, 2004, 2003, 2002, and 2001,2002, respectively.
The Company has a deferred compensation plan withfor key employees. The agreements have benefits, which vest duringover a three-year period. The Company shall make five equal annual installments upon retirement of the employees. The future payments have been discounted at 8%. The amount recognized as expense during the years ended December 31, 2004, 2003, and 2002 was $18,664, $30,237, and 2001 was $30,237, $21,064, and $34,000, respectively. The Company anticipates makingmade payments of approximately $11,000 in$10,600 during 2004. Deferred compensation is recorded at $129,345 and $121,301 as of December 31, 2004 and 2003, respectively.
NOTE 12 - OPERATING LEASESCOMMITMENTS
The Company has operating leases for 337 rail cars from GE Capital. The lease requiresleases require monthly payments of $124,958.$137,316. The leases began in 1996 and have eighteen-year terms. The Company also leases 100 rail cars from Trinity Capital. TheThis lease requires monthly payments of $38,300. Lease expense for all rail cars was $2,068,015, $1,903,367, $1,703,279, and $1,472,435$1,703,279 for the years ended December 31, 2004, 2003, 2002, and 2001,2002, respectively. The Company generates revenues from the use of 299 of these rail cars on other railroads. Such revenues were $1,794,012, $1,648,666, $1,448,409, and $1,427,645$1,448,409 for the years ended December 31, 2004, 2003, 2002, and 2001,2002, respectively.
The Company has entered into a sub-lease agreement with the Dakota, Minnesota & Eastern Railroad Corporation (DME)(“DME”) for the hopper rail cars that it leases from GE Capital. The Company recognizes revenue from this sub-lease as the hopper rail cars are used by the DME. The sub-lease is for a twelve-month period and is renewed annually. The Company is responsible for all maintenance of the rail cars.
The Company also has a number of other operating leases for machinery and equipment. Rental expense under these other operating leases was $321,490,$197,864, $328,079, and $628,306 and $354,224 for the years ended December 31, 2004, 2003, 2002, and 2001,2002, respectively.
The following is a schedule of future minimum rental payments required under these operating leases.
|
| Rail Cars |
| Other |
| Total |
|
| Rail Cars |
| Other |
| Total |
| ||||||
Year ended December 31: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
2004 |
| $ | 1,959,096 |
| $ | 41,315 |
| $ | 2,000,411 |
| ||||||||||
2005 |
| 1,959,096 |
| 41,315 |
| 2,000,411 |
|
| $ | 2,107,392 |
| $ | 41,315 |
| $ | 2,148,707 |
| |||
2006 |
| 1,911,846 |
| 30,616 |
| 1,942,462 |
|
| 2,107,392 |
| 30,616 |
| 2,138,008 |
| ||||||
2007 |
| 1,704,596 |
| 4,644 |
| 1,709,240 |
|
| 1,913,267 |
| 4,644 |
| 1,917,911 |
| ||||||
2008 |
| 1,436,496 |
| — |
| 1,436,496 |
|
| 1,616,292 |
| — |
| 1,616,292 |
| ||||||
2009 |
| 1,616,292 |
| — |
| 1,616,292 |
| |||||||||||||
Thereafter |
| 10,842,774 |
| — |
| 10,842,774 |
|
| 11,010,294 |
| — |
| 11,010,294 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Totals |
| $ | 19,813,904 |
| $ | 117,890 |
| $ | 19,931,794 |
|
| $ | 20,370,929 |
| $ | 76,575 |
| $ | 20,447,504 |
|
(continued on next page)
F-16
F-20
SOUTH DAKOTA SOYBEAN PROCESSORS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
We have an exclusive supply agreement with ACH Foods to provide its facilities with a consistent supply of refined and bleached oil on a general requirements basis. We have a fixed pricing established for the first five years, with the option to renegotiate the price thereafter. The oil is transported by rail from our plant to one of ACH Foods’ facilities, where it is further processed for the edible oil.
NOTE 13 - CASH FLOW INFORMATION
The following is a schedule of changes in assets and liabilities used to determine cash from operating activities:
|
| 2003 |
| 2002 |
| 2001 |
|
| 2004 |
| 2003 |
| 2002 |
| ||||||
(Increase) decrease in assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Trade accounts |
| $ | (8,786,716 | ) | $ | (3,465,073 | ) | $ | (1,064,418 | ) | ||||||||||
Trade accounts receivable |
| $ | 6,078,874 |
| $ | (8,786,716 | ) | $ | (3,465,073 | ) | ||||||||||
Inventories |
| 2,363,170 |
| (5,965,921 | ) | 718,574 |
|
| 2,174,900 |
| 2,363,170 |
| (5,965,921 | ) | ||||||
Margin account deposit |
| 1,114,848 |
| 187,654 |
| (573,983 | ) |
| (1,611,931 | ) | 1,114,848 |
| 187,654 |
| ||||||
Prepaids |
| (33,442 | ) | (223,820 | ) | (56,886 | ) | |||||||||||||
Prepaid expenses |
| (24,097 | ) | (33,442 | ) | (223,820 | ) | |||||||||||||
|
| (5,342,140 | ) | (9,467,160 | ) | (976,713 | ) |
| 6,617,746 |
| (5,342,140 | ) | (9,467,160 | ) | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Increase (decrease) in liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Excess of outstanding checks over bank balance |
| (1,214,902 | ) | 2,026,870 |
| 24,150 |
| |||||||||||||
Accounts payable |
| 275,240 |
| 171,112 |
| (212,572 | ) |
| (766,834 | ) | 275,240 |
| 171,112 |
| ||||||
Accrued commodity purchases |
| 1,342,767 |
| 8,466,777 |
| 1,613,556 |
|
| 2,148,041 |
| 1,342,767 |
| 8,466,777 |
| ||||||
Accrued expenses |
| (198,126 | ) | 277,226 |
| 120,930 |
| |||||||||||||
Accrued expenses and interest |
| 259,521 |
| (198,126 | ) | 277,226 |
| |||||||||||||
Deferred compensation |
| 30,237 |
| 21,064 |
| 34,000 |
|
| 8,044 |
| 30,237 |
| 21,064 |
| ||||||
|
| 235,216 |
| 10,963,049 |
| 1,580,064 |
|
| 1,648,772 |
| 1,450,118 |
| 8,936,179 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Total |
| $ | (5,106,924 | ) | $ | 1,495,889 |
| $ | 603,351 |
|
| $ | 8,266,518 |
| $ | (3,892,022 | ) | $ | (530,981 | ) |
NOTE 14 - FAIR VALUE OF FINANCIAL INSTRUMENTS
Estimated fair values of the Company’s financial instruments (all of which are held for non-trading purposes) are as follows:
|
| 2003 |
| 2002 |
|
| 2004 |
| 2003 |
| ||||||||||||||||
|
| Carrying |
| Fair |
| Carrying |
| Fair |
|
| Carrying |
| Fair |
| Carrying |
| Fair |
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Cash and cash equivalents |
| $ | 529,697 |
| $ | 529,697 |
| $ | 11,170 |
| $ | 11,170 |
|
| $ | 11,423 |
| $ | 11,423 |
| $ | 529,697 |
| $ | 529,697 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Margin deposits |
| — |
| — |
| 927,339 |
| 927,339 |
|
| 1,424,422 |
| 1,424,422 |
| — |
| — |
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Long-term debt |
| 18,519,258 |
| 18,370,381 |
| 10,244,931 |
| 10,258,941 |
|
| 10,202,589 |
| 10,095,955 |
| 18,519,258 |
| 18,370,381 |
| ||||||||
The carrying amount approximates fair value of cash and margin deposits. The fair value of long-term debt is based on current rates at which the Company could borrow funds with similar remaining maturities. The carrying amount of accounts receivable, accounts payable, investments, and accrued commodity purchases approximates their fair value.
(continued on next page)
F-21
SOUTH DAKOTA SOYBEAN PROCESSORS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company has a patronage investment in other cooperatives and common stock in a privately held entity. There is no market for their patronage credits or the entity’s common shares, and it was impracticable to estimate fair value of the Company’s investment. The investment is carried on the balance sheet at original cost.
(continued on next page)
F-17
NOTE 15 - COMMITMENTSRELATED PARTY TRANSACTIONS
During August 2000, the Company entered into an agreement with Minnesota Soybean Processors Cooperative (MnSP) for certain services and management of a proposed soybean processing plant. The agreement providesprovided the Company a fee of 10% of the equity raised by MnSP for the Company’s services related to business planning and construction management services. Fees earned under this arrangement were $126,250, $1,245,205, and $1,241,591 for the years ended December 31, 2004, 2003 and 2002, respectively. The Company has agreed to reinvest a minimum of 80% of the fees earned from MnSP in equity units of MnSP. Fees earned under this arrangement were $1,245,205, $1,241,591During 2004, the Company exchanged a storage facility with a net book value of $2,322,561 as its reinvestment and $301,754 the years ended December 31, 2003, 2002 and 2001, respectively.paid cash of $600,931.
In addition, the Company has agreed to provide management and marketing services to MnSP on a cost-sharing basis. The agreement is for automatically renewing five-year periods beginning sixty days before the plant is scheduled to begin operations. Operations of the MnSP plant began during 2003, and thein late 2003. The Company earned fees of $1,047,193 and $226,985 under this arrangement for the yearyears ended December 31, 2004 and 2003. As of December 31, 2004 and 2003, MnSP owed the Company $74,338 and $3,635,318, respectively.
In addition, the Company is makingproviding up to $1 million in interest free loans, backed by retained local earningsmembers’ equity, available for members of the Company who choose to invest in MnSP. As of December 31, 2003,2004, the Company had made loansoutstanding notes receivable of $481,710. These will be repaid as the Board of Managers approves distributions of prior earnings.
NOTE 16 - BUSINESS CREDIT RISK
The Company maintains its cash balances with various financial institutions. At times during the year, the Company’s balances exceeded the $100,000 insurance limit of the Federal Deposit Insurance Corporation. Management believes the risk of loss to be low.
The Company also grants credit to customers throughout the United States and Canada. The Company evaluates each customer’s credit worthiness on a case-by-case basis. Accounts receivable are generally unsecured. These receivables were $23,804,867$17,480,118 and $14,969,040$23,804,867 at December 31, 20032004 and 2002,2003, respectively.
Soybean meal sales accounted for approximately sixty-six percent60% of total revenues for the year ended December 31, 2004, 58% of total revenues for the year ended December 31, 2003, sixty-six percentand 66% of total revenues for the year ended December 31, 2002,2002. Approximately 32%, 37%, and sixty-eight percent for the year ended December 31, 2001. Approximately thirty-seven percent, twenty-three percent, and twenty-one percent23% of these sales were made to one customer for the years ended December 31, 2004, 2003, 2002, and 2001,2002, respectively. At December 31, 20032004 and 2002,2003, this customer owed the Company approximately $1,024,000 and $3,534,000, and $1,370,000, respectively. SoybeanRefined oil sales represented approximately nine percent37% of total revenues for the year ended December 31, 2003, twenty percent of sales for the years ended December 31, 2002, and twenty percent of sales for the years ended December 31, 2001. Approximately forty-six percent of these sales were made to one customer for the years ended December 31, 2003. These sales were primarily to one customer in 2002 and prior. This customer owed the Company approximately $352,000 and $121,000 at December 31, 2003 and 2002, respectively. Refined oil sales represented approximately thirty percent2004, 30% of total revenues for the year ended December 31, 2003, and eleven percent11% of total revenues for the year ended December 31, 2002. These sales were primarily to one customer. This customer owed the Company approximately $6,516,000$6,791,000 and $4,591,000$6,516,000 at December 31, 2004 and 2003, and 2002.respectively.
Sales by geographic area for these years ended December 31, 2003, 2002 and 2001 are as follows:
|
| 2003 |
| 2002 |
| 2001 |
| |||
|
|
|
|
|
|
|
| |||
United States |
| $ | 189,556,575 |
| 140,597,284 |
| $ | 130,558,146 |
| |
Canada |
| 17,700,000 |
| 18,900,000 |
| 17,700,000 |
| |||
|
|
|
|
|
|
|
| |||
|
| $ | 207,256,575 |
| $ | 159,497,284 |
| $ | 148,258,146 |
|
(continued on next page)
F-18
F-22
NOTE 17 - SEGMENT REPORTINGSOUTH DAKOTA SOYBEAN PROCESSORS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company organizes its business units into three reportable segments: soybean-processing, crude oil refining, and polyurethane. Separate management of each segment is required because each segment is subject to different marketing, production, and technology strategies. The soybean-processing segment purchases soybeans and further processes them into primarily three products: soybean meal, crude soybean oil, and soybean hulls. The oil-refining segment further refines the crude soybean oil for sale in commercial applications. The polyurethane segment processes oil into a bio-based polyurethane product that is used in foam applications. The segments’ accounting policies are the same as those described in the summary of significant accounting polices. Market prices are used to report intersegment sales. All items not related to one of the three segments are included in the column titled “Other.”
Segment informationNet revenue by geographic area for the years ended December 31, 2004, 2003 and 2002 are as follows:
|
| Soybean |
| Oil |
| Polyurethane |
| Other |
| Total |
| |||||
FOR THE YEAR ENDED |
|
|
|
|
|
|
|
|
|
|
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Sales to external customers |
| $ | 144,437,434 |
| $ | 62,500,006 |
| $ | 319,135 |
| $ | — |
| $ | 207,256,575 |
|
Interest expense |
| 279,638 |
| 317,853 |
| 204,687 |
| — |
| 802,178 |
| |||||
Depreciation and amortization |
| 2,577,739 |
| 357,605 |
| 77,071 |
| — |
| 3,012,415 |
| |||||
Income tax benefit |
| 131,474 |
| — |
| — |
| — |
| 131,474 |
| |||||
Segment profit (loss) |
| 3,597,665 |
| 183,411 |
| (1,088,940 | ) | 702,688 |
| 3,394,824 |
| |||||
Minority interest |
| — |
| — |
| 457,620 |
| — |
| 457,620 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Segment assets |
| 59,004,036 |
| 11,044,928 |
| 8,763,829 |
| 2,804,271 |
| 81,617,064 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Expenditures for segment assets |
| 896,881 |
| — |
| 119,968 |
| — |
| 1,016,849 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
FOR THE YEAR ENDED |
|
|
|
|
|
|
|
|
|
|
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Sales to external customers |
| $ | 141,942,209 |
| $ | 17,383,370 |
| $ | 163,066 |
| $ | — |
| $ | 159,488,645 |
|
Interest expense |
| 398,533 |
| 135,192 |
| 8,495 |
| — |
| 542,220 |
| |||||
Depreciation and amortization |
| 2,593,432 |
| 118,688 |
| 39,027 |
| — |
| 2,751,147 |
| |||||
Income tax expense |
| 520,000 |
| — |
| — |
| — |
| 520,000 |
| |||||
Segment profit (loss) |
| 6,237,559 |
| (381,815 | ) | (236,412 | ) | 993,394 |
| 6,612,726 |
| |||||
Minority interest |
| — |
| — |
| — |
| — |
| — |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Segment assets |
| 58,604,024 |
| 7,847,047 |
| 1,471,945 |
| 2,361,881 |
| 70,284,897 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Expenditures for segment assets |
| 1,135,688 |
| 3,509,332 |
| — |
| — |
| 4,645,020 |
| |||||
|
| 2004 |
| 2003 |
| 2002 |
| |||
|
|
|
|
|
|
|
| |||
United States |
| $ | 225,511,056 |
| $ | 189,556,575 |
| $ | 140,597,284 |
|
Canada |
| 12,700,000 |
| 17,700,000 |
| 18,900,000 |
| |||
|
|
|
|
|
|
|
| |||
|
| $ | 238,211,056 |
| $ | 207,256,575 |
| $ | 159,497,284 |
|
(continued on next page)NOTE 17 - STOCK OFFERING
F-19
The Board of Directors approved a registration statement to be filed with the Securities and Exchange Commission for the sale of additional units in a public offering. The maximum offering under the statement will be $11,250,000. As of December 31, 2004 the Company was waiting to commence sales of the capital units until the Securities and Exchange Commission declares the registration statement effective and the offering is authorized or exempted by the regulatory authorities in the respective states where the offering is planned to occur.
NOTE 18 - LEGAL PROCEEDINGS
From time-to-timetime to time in the ordinary course of the Company’sour business, the Companywe may be named as a defendant in legal proceedings related to various issues, including without limitation, workers’ compensation claims, tort claims, or contractual disputes. The Company carriesWe carry insurance that provides protection against general commercial liability claims, claims against our directors, officers and employees, business interruption, automobile liability, and workers’ compensation claims. Except as described below, we are not currently involved in any material legal proceedings and are not aware of any potential claims.
The Company hasOn January 28, 2003, we were served with notice that we had been named as a defendant in a breach of contract suit alleging variousin the circuit court of Cook County, Illinois, along with a number of other individual defendants, including our Chief Executive Officer, Rodney Christianson. The plaintiff, James Jackson, was an employee of USSC whose services were terminated shortly after we became the majority owner in early January 2003. Mr. Jackson claims that he was wrongfully terminated and that the defendants unjustly interfered with his employment contract and committed fraud in connection with our acquisition of a controlling interest in USSC. He is claiming nearly $1 million in compensatory damages and $5 million in punitive damages. Based upon our investigation of the facts surrounding the case, we believe that Mr. Jackson’s employment contract was not properly authorized and that his claims are substantially without merit. We are vigorously defending the action; however, we cannot provide any assurance that we will be successful in disposing of the case or that any costs of settlement or damages would not be material if we are unable to get the case dismissed. We have entered into mediation negotiations with Mr. Jackson, but have not yet reached a settlement agreement. Under the terms of our stock purchase agreement with USSC, we believe that we would be entitled to indemnification from USSC for our costs to settle or defend the suit, although since we now own 58% of USSC we will not receive dollar-for-dollar indemnification from USSC.
# # # # # #
F-20F-23
The Board of Managers
South Dakota Soybean Processors, LLC
Volga, South Dakota
Under the date of March 1, 2005, we reported on the consolidated balance sheet of South Dakota Soybean Processors, LLC as of December 31, 2004, and the related consolidated statements of operations, members’ equity, and cash flows for the year then ended. In connection with our audit of the aforementioned consolidated financial statements, we also have audited the related financial statement schedule as listed in the accompanying index. The financial statement schedule is the responsibility of the Company’s management. Our responsibility is to express an opinion on the financial statement schedule based on our audit.
In our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
Gordon, Hughes & Banks, LLP
/s/ Gordon, Hughes & Banks, LLP | |
Greenwood Village, Colorado | |
March 1, 2005 | |
F-24
The Board of Managers
South Dakota Soybean Processors, LLC
Volga, South Dakota
Under the date of January 23, 2004, we reported on the consolidated balance sheets of South Dakota Soybean Processors, LLC and subsidiary as of December 31, 2003, and 2002, and the related consolidated statements of operations, members’ equity, and cash flows for each of the years in the three-yeartwo-year period ended December 31, 2003, as contained herein. In connection with our audits of the aforementioned consolidated financial statements, we also have audited the related financial statement schedule as listed in the accompanying index. The financial statement schedule is the responsibility of the Company’s management. Our responsibility is to express an opinion on the financial statement schedule based on our audits.
In our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
Eide Bailly, LLP | ||
/s/ Eide Bailly, LLP | ||
| ||
Sioux Falls, South Dakota | ||
January 23, 2004 | ||
F-21F-25
Index to Financial Statements
SOUTH DAKOTA SOYBEAN PROCESSORS, LLC
FINANCIAL STATEMENT SCHEDULE
|
| Balance at |
| Charged |
|
|
| Balance at |
| |||||||||||||||
Description |
| Balance at |
| Charged |
| Deductions |
| Balance at |
|
| Period |
| Additions |
| Deductions |
| Period |
| ||||||
|
|
|
| Additions |
|
|
|
|
| |||||||||||||||
COL. A |
| COL. B |
| COL. C |
| COL. D |
| COL. E |
| |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Deducted from asset accounts: |
|
|
|
|
|
|
|
|
| |||||||||||||||
Year ended December 31, 2001: |
|
|
|
|
|
|
|
|
| |||||||||||||||
Allowance for doubtful receivables |
| $ | 168,871 |
| 60,000 |
| 2,358 |
| $ | 226,513 |
| |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Deducted from asset accounts: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Year ended December 31, 2002: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Allowance for doubtful receivables |
| $ | 226,513 |
| 60,000 |
| 13,182 |
| $ | 273,331 |
| |||||||||||||
Allowance for doubtful accounts |
| $ | 226,513 |
| $ | 60,000 |
| $ | 13,182 |
| $ | 273,331 |
| |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Deducted from asset accounts: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Year ended December 31, 2003: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Allowance for doubtful receivables |
| $ | 273,331 |
| — |
| (547 | ) | $ | 273,878 |
| |||||||||||||
Allowance for doubtful accounts |
| $ | 273,331 |
| $ | — |
| $ | (3,547 | ) | $ | 276,878 |
| |||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Deducted from asset accounts: |
|
|
|
|
|
|
|
|
| |||||||||||||||
Year ended December 31, 2004: |
|
|
|
|
|
|
|
|
| |||||||||||||||
Allowance for doubtful accounts |
| $ | 276,878 |
| $ | (248,987 | ) | $ | (109 | ) | $ | 28,000 |
| |||||||||||
F-22F-26